FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the year ended December 31, 2020. Financial information in this report is consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC. This discussion and analysis of financial condition and results of operations should be read together with Farmer Mac's consolidated financial statements and the related notes to the consolidated financial statements for the fiscal years ended December 31, 2020, 2019, and 2018. Overview The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." COVID-19 Update Farmer Mac continues to closely monitor the effects of the COVID-19 pandemic on our financial condition and operations. We have operated uninterrupted and entirely remotely since March 2020, and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during the pandemic. During 2020: • we maintained uninterrupted access to the debt capital markets; • we provided a total of $5.7 billion in liquidity and lending capacity to lenders serving rural America; • we worked with our loan servicers and other partners to respond to and facilitate COVID-19-related payment deferment requests from borrowers and executed COVID-19 payment deferments for $432.0 million of unpaid principal balance on Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers; • we continued to maintain strong liquidity in our investment portfolio, as evidenced by our year-end cash position of $1.0 billion; and • we built and preserved capital and liquidity by issuing net new preferred stock of $139.5 million and indefinitely suspending our common stock repurchase program. The economic impacts of the COVID-19 pandemic caused our total allowance for credit losses to remain elevated at the end of 2020. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Loss (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). Under CECL, our allowances and reserve for credit losses reflect our estimate of expected losses over the lives of our financial instruments based on historical information and reasonable and supportable forecasts. The economic effects from the COVID-19 pandemic that most affected our estimate of expected credit losses were the effects on credit spreads and expectations for continued elevated levels of unemployment. Of the $8.1 million credit loss provision that we recorded during 2020, $1.0 million was attributable to economic factors, mostly related to COVID-19. For more information about the effect of COVID-19 on Farmer Mac's expected credit losses, see "Management's Discussion and 51 Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees." For more information about Farm & Ranch payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." For more information about AgVantage loan collateral payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional." Net Income and Core Earnings The following table shows our net income attributable to common stockholders and core earnings for the periods presented. Core earnings and core earnings per share are non-GAAP measures that differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations and specified infrequent or unusual transactions. Table 1 For the Years Ended December 31, 2020 2019 2018 (in thousands) Net income attributable to common stockholders $ 89,176 $ 93,650 $ 94,898 Core earnings 100,612 93,742 84,047 The $4.5 million decrease in net income attributable to common stockholders for 2020 compared to 2019 was primarily due to a $7.5 million after-tax increase in operating expenses, a $4.4 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses. These decreases were partially offset by a $13.8 million after-tax increase in net interest income and a $1.3 million after-tax increase in other income. The $1.2 million decrease in net income attributable to common stockholders for 2019 compared to 2018 was due to a $2.5 million after-tax increase in the provision for loan losses, a $1.6 million after-tax increase in operating expenses, a $1.0 million after-tax decrease in net interest income, and a $0.8 million increase in preferred stock dividends. These factors were partially offset by a $7.1 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates. The $6.9 million increase in core earnings for 2020 compared to 2019 was primarily due to a $22.4 million after-tax increase in net effective spread. This increase was partially offset by a $7.5 million after-tax increase in operating expenses, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total provision for credit losses. The $9.7 million increase in core earnings for 2019 compared to 2018 was primarily due to a $13.8 million after-tax increase in net effective spread driven by higher business volume, partially offset by a $2.5 million after-tax increase in the provision for loan losses and a $1.6 million after-tax increase in operating expenses. 52 For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." Net Interest Income and Net Effective Spread The following table shows our net interest income and net effective spread in both dollars and percentage yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as an alternative to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income. Table 2 For the Years Ended December 31, 2020 2019 2018 (in thousands) Net interest income $ 190,588 $ 173,135 $ 174,436 Net interest yield % 0.85 % 0.87 % 0.96 % Net effective spread 196,956 168,608 151,195 Net effective spread % 0.93 % 0.91 % 0.91 % The $17.5 million increase in net interest income for 2020 compared to 2019 was primarily due to a $23.2 million increase related to new business volume. This was partially offset by a $4.1 million increase in funding and liquidity costs and a $1.3 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives). In percentage terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.04% related to new business volume. The $1.3 million decrease in net interest income in 2019 compared to 2018 was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships and a $5.2 million increase in funding and liquidity costs. These factors were partially offset by $15.1 million in net new business volume across all lines of business, the change in composition of existing Institutional Credit business volume and $1.6 million in various interest income fluctuations primarily related to prepayment activity. The 0.09% decrease in percentage terms was primarily attributable to a 0.06% decrease in net fair value changes from fair value hedge accounting relationships and a 0.05% increase in funding and liquidity costs, partially offset by a 0.01% increase from business volume. The $28.3 million increase in net effective spread in dollars for 2020 compared to 2019 was primarily due to new business volume, which increased net effective spread by approximately $23.2 million, and a $4.6 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.02% was primarily attributable to new business volume. The $17.4 million increase in net effective spread in dollars for 2019 compared to 2018 was due to a $14.2 million increase from net new business volume across all lines of business, the change in 53 composition of existing Institutional Credit business volume, a $1.6 million increase in various interest income fluctuations primarily related to prepayment activity, and a $1.6 million decrease in non-GAAP funding costs. In percentage terms, net effective spread was 0.91% in both 2019 and 2018, as the increase from the absence of the amortization of $2.0 million in premium of an interest-only security held in Farmer Mac's investment portfolio (the "Interest-Only Amortization") was offset by the decrease from narrower spreads on liquidity investment securities. For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." Business Volume Our outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, maturities, and paydowns on existing assets. This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees. These net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business. The $804.2 million net increase in our Farm & Ranch line of business reflected a $1.2 billion net increase in outstanding loan purchase volume that was partially offset by net decreases of $313.9 million in loans held in consolidated trusts and $95.7 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. The $536.3 million net increase in our Rural Utilities line of business reflected a $589.1 million net increase in outstanding loan purchase volume that was partially offset by a $52.9 million net decrease in loans under LTSPCs. The $700.9 million net decrease in our Institutional Credit line of business was primarily attributable to maturities of $2.0 billion in our Institutional Credit line of business that was only partially offset by new business. For more information about Farmer Mac's business volume, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Business Volume." 54 Capital Table 3 As of December 31, 2020 December 31, 2019 (in thousands) Core capital $ 1,006,400 $ 815,437 Capital in excess of minimum capital level required 325,455 196,669 The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the Series E Preferred Stock and Series F Preferred Stock and the increase in retained earnings, partially offset by growth in our outstanding business volume and the redemption of the Series A Preferred Stock. Current Expected Credit Loss As noted above, Farmer Mac adopted CECL on January 1, 2020. Under CECL, we estimate and recognize expected credit losses over the lives of our financial assets. We base our estimate of expected losses on historical loss information and reasonable and supportable forecasts. In 2020, our reasonable and supportable forecasts included the impact of the COVID-19 pandemic on economic factors such as credit spreads and unemployment. Thus, our total provision for credit losses during the year ended December 31, 2020 was affected by the ongoing economic effects of the COVID-19 pandemic. As of December 31, 2020, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $13.8 million (0.16% of all loans), compared to $10.5 million (0.15% of all loans) as of December 31, 2019. As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $1.5 million. For the year ended December 31, 2020, Farmer Mac recorded a provision to its allowance for loan losses of $7.7 million. Farmer Mac also recorded a direct charge-off of $5.8 million from the allowance. The charge-off was primarily related to a Farm & Ranch agricultural storage & processing loan secured by a specialized poultry facility. As of December 31, 2020, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $3.3 million (0.10% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $2.2 million (0.06% of all off-balance sheet LTSPCs and Guaranteed Securities) as of December 31, 2019. As of January 1, 2020, Farmer Mac recorded a cumulative transition adjustment of $0.9 million. For the year ended December 31, 2020, Farmer Mac recorded a provision to its reserve for its off-balance sheet portfolio of $0.3 million. 55 Credit Quality The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of December 31, 2020 and December 31, 2019: Table 4 Farm & Ranch Line of Business On-Balance Sheet Off-Balance Sheet Substandard Assets % of Portfolio Substandard Assets % of Portfolio (dollars in thousands) December 31, 2020 $ 180,823 2.9 % $ 110,671 4.6 % December 31, 2019 207,078 3.9 % 102,877 4.1 % Increase/(decrease) from prior year-ending $ (26,255) (1.0) % $ 7,794 0.5 % The decrease of $26.3 million in on-balance sheet substandard assets during 2020 was primarily driven by credit upgrades during the year, particularly in permanent plantings, livestock, and crops. The on-balance sheet Farm & Ranch portfolio grew by $899.9 million which, when coupled with credit upgrades, and charge-offs, caused the percentage of substandard assets to decrease. The $7.8 million increase in substandard assets in our off-balance sheet Farm & Ranch portfolio during 2020 was primarily due to credit downgrades in the livestock portfolio during the year. There were no substandard assets in the Rural Utilities portfolio as of both December 31, 2020 and 2019. For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 27 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." 56 The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of December 31, 2020 and December 31, 2019: Table 5 Farm & Ranch Line of Business On-Balance Sheet Off-Balance Sheet 90-Day Delinquencies % of Portfolio 90-Day Delinquencies % of Portfolio (dollars in thousands) December 31, 2020 $ 34,799 0.56 % $ 11,433 0.48 % December 31, 2019 57,719 1.09 % 3,235 0.13 % Increase/(decrease) from prior year-ending $ (22,920) (0.53) % $ 8,198 0.35 % On-balance sheet Farm & Ranch loans 90 or more days delinquent decreased in permanent plantings, livestock, crops, and part-time farms, offset by an increase in agricultural storage and processing attributable to the single loan secured by a specialized poultry facility. Off-balance sheet Farm & Ranch loans 90 days or more delinquent increased in crops and part-time farms, offset by decreases in livestock and permanent plantings. The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet portfolio represented over half of the aggregate 90-day delinquencies as of December 31, 2020. There were no delinquencies in the Rural Utilities portfolio as of both December 31, 2020 and 2019. For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total allowance for losses, and substandard assets, as well as the effects of the COVID-19 pandemic on loan payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Critical Accounting Policies and Estimates The preparation of Farmer Mac's consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented. Actual results could differ from those estimates. Farmer Mac views the allowance for losses and fair value measurement as critical accounting policies. Both policies require complex and subjective judgments and are important to the presentation of Farmer Mac's financial condition and results of operations. Allowance for Losses On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ("CECL"). Under CECL, Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date. Under CECL, Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates. 57 Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively, "allowance for losses"). Additionally, Farmer Mac maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively, "reserve for losses"). Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts. Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the expected life of all financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. The allowance for losses increases through periodic provisions for loan losses that are charged against net interest income and the reserve for losses increases through provisions for losses that are charged to non-interest expense. Both the allowance for losses and reserve for losses are decreased by charge-offs for realized losses, net of recoveries. Releases from the allowance for losses or reserve for losses occur when the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of the period. The total allowance for losses consists of the allowance for losses and the reserve for losses. Charge-offs Farmer Mac records a charge-off from the allowance for losses when either a) a loan, or a portion of a loan, is deemed uncollectible; or b) a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan. The charge-off equals the excess of the recorded investment in the loan over the fair value of the collateral less estimated selling costs. Estimation Methodology Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical model, which incorporates credit loss history and reasonable and supportable forecasts. Farmer Mac's estimation methodology includes the following key components: • An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit; • A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life (the migration matrix forms the basis for our estimate of the probability of default of each financial asset); • A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset; • An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets (including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices); and 58 • A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset. Management evaluates these assumptions by considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio, including risk ratings and financial metrics; • delinquency trends of the portfolio; • historical charge-off and recovery activities of the portfolio; and • other factors to capture current portfolio trends and characteristics that differ from historical experience. Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of the company's financial assets. Allowance for Loss on Available-for-Sale (AFS) Securities To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those impaired securities that: 1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that Farmer Mac will be required to sell before recovering its amortized cost basis. In assessing whether a credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss. However, the amount of that allowance is limited by the amount that the security’s fair value is less than its amortized cost basis. Accrued interest receivable is recorded separately on the Consolidated Balance Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable. Collateral Dependent Assets ("CDAs") CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral by Farmer Mac. Farmer Mac estimates the current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it, and any applicable credit protection such as a guarantee. 59 COVID-19 Payment Deferments The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the COVID-19 pandemic. On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak. This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by the COVID-19 pandemic. Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans. Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring. In estimating expected credit losses on Farm & Ranch loans held for investment, Farmer Mac does consider payment deferments along with other available credit and economic information that pertains to that portfolio. More information about the allowance for losses is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Note 2(g) to the consolidated financial statements. Fair Value Measurement A significant portion of Farmer Mac's assets consists of financial instruments that are measured at fair value in the consolidated balance sheets. For financial instruments that are complex in nature or for which observable inputs are not available, the measurement of fair value requires management to make significant judgments and assumptions. These judgments and assumptions, as well as changes in market conditions, may have a material effect on the consolidated balance sheets and statements of operations. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price) and establishes a hierarchy for ranking fair value measurements. In determining fair value, Farmer Mac uses various valuation approaches, including market and income approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness before use in the consolidated financial statements. When observable market prices are not readily available, Farmer Mac estimates fair value using techniques that rely on alternate market data or internally developed models using significant inputs that are generally less readily observable. Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility, and prepayment rates. If market data needed to estimate fair value is not available, Farmer Mac estimates fair value using 60 internally-developed models that employ a discounted cash flow approach. Even when market assumptions are not readily available, Farmer Mac's assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date. Farmer Mac's assets and liabilities presented at fair value in the consolidated balance sheets on a recurring basis include investment securities, Farmer Mac Guaranteed Securities, and financial derivatives. The changes in fair value from period to period are recorded either in the consolidated statements of comprehensive income as other comprehensive (loss)/income, net of tax or in the consolidated statements of operations as gains/(losses) on financial derivatives, net interest income, or gains/(losses) on trading assets. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The hierarchy has the following three levels to classify fair value measurements: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Level 3 Prices or valuations that require unobservable inputs that are significant to the fair value measurement. As of December 31, 2020, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $7.0 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3). These financial instruments measured as level 3 represented 29 % of total assets and 65 % of financial instruments measured at fair value as of December 31, 2020. See Note 13 to the consolidated financial statements for more information about fair value measurement. Use of Non-GAAP Measures In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. 61 Core Earnings and Core Earnings Per Share The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Another difference is that these two non-GAAP measures exclude specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, we have excluded from core earnings and core earnings per share any losses on retirement of preferred stock. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." Net Effective Spread Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain. Farmer Mac excludes from net effective spread the premiums and discounts on assets consolidated at fair value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not expected to have an economic effect on Farmer Mac's financial performance if the assets are held to maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity. Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread. 62 Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship. For a reconciliation of net interest income and net interest yield to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income." Results of Operations Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings: 63 Table 6 Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings For the Year Ended December 31, 2020 2019 2018 (in thousands, except per share amounts) Net income attributable to common stockholders $ 89,176 $ 93,650 $ 94,898 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (3,691) 10,077 7,959 (Losses)/gains on hedging activities due to fair value changes (10,019) (9,010) 4,449 Unrealized gains on trading securities 51 326 81 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 58 (122) (461) Net effects of terminations or net settlements on financial derivatives 1,236 1,089 1,708 Issuance costs on the retirement of preferred stock (1,667) (1,956) — Income tax effect related to reconciling items 2,596 (496) (2,885) Sub-total (11,436) (92) 10,851 Core earnings $ 100,612 $ 93,742 $ 84,047 Composition of Core Earnings: Revenues: Net effective spread (1) $ 196,956 $ 168,608 $ 151,195 Guarantee and commitment fees (2) 19,150 21,335 20,733 Other (3) 2,687 1,775 520 Total revenues 218,793 191,718 172,448 Credit related expense (GAAP): Provision for losses 8,055 3,501 335 REO operating expenses — 64 16 (Gains)/losses on sale of REO (463) — 7 Total credit related expense 7,592 3,565 358 Operating expenses (GAAP): Compensation and employee benefits 36,502 28,762 27,534 General and administrative 21,976 20,311 19,707 Regulatory fees 2,925 2,788 2,562 Total operating expenses 61,403 51,861 49,803 Net earnings 149,798 136,292 122,287 Income tax expense (4) 31,381 28,610 25,058 Preferred stock dividends (GAAP) 17,805 13,940 13,182 Core earnings $ 100,612 $ 93,742 $ 84,047 Core earnings per share: Basic $ 9.38 $ 8.76 $ 7.89 Diluted 9.33 8.70 7.82 Weighted-average shares: Basic 10,728 10,696 10,654 Diluted 10,786 10,778 10,746 (1) Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread. 64 (2) Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. (3) Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. (4) Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. Table 7 Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share For the Year Ended December 31, 2020 2019 2018 GAAP - Basic EPS $ 8.31 $ 8.76 $ 8.91 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.34) 0.94 0.75 (Losses)/gains on hedging activities due to fair value changes (0.94) (0.83) 0.41 Unrealized gains on trading securities — 0.03 0.01 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 (0.01) (0.04) Net effects of terminations or net settlements on financial derivatives 0.12 0.10 0.16 Issuance costs on the retirement of preferred stock (0.16) (0.18) — Income tax effect related to reconciling items 0.24 (0.05) (0.27) Sub-total (1.07) — 1.02 Core Earnings - Basic EPS $ 9.38 $ 8.76 $ 7.89 Shares used in per share calculation (GAAP and Core Earnings) 10,728 10,696 10,654 Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share For the Year Ended December 31, 2020 2019 2018 GAAP - Diluted EPS $ 8.27 $ 8.69 $ 8.83 Less reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (see Table 14) (0.34) 0.93 0.74 (Losses)/gains on hedging activities due to fair value changes (0.93) (0.83) 0.41 Unrealized gains on trading securities — 0.03 0.01 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value 0.01 (0.01) (0.04) Net effects of terminations or net settlements on financial derivatives 0.11 0.10 0.16 Issuance costs on the retirement of preferred stock (0.15) (0.18) — Income tax effect related to reconciling items 0.24 (0.05) (0.27) Sub-total (1.06) (0.01) 1.01 Core Earnings - Diluted EPS $ 9.33 $ 8.70 $ 7.82 Shares used in per share calculation (GAAP and Core Earnings) 10,786 10,778 10,746 65 The non-GAAP reconciling items between net income attributable to common stockholders and core earnings are: 1. Losses on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) (Losses)/gains on undesignated financial derivatives due to fair value changes; and (b) Losses on hedging activities due to fair value changes. The table below calculates the non-GAAP reconciling item for losses on hedging activities due to fair value changes: Table 8 Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes For the Year Ended December 31, 2020 2019 2018 (Losses)/gains due to fair value changes (see Table 6.2) $ (9,184) $ (7,907) $ 4,941 Initial cash payment (received) at inception of swap (835) (1,103) (492) (Losses)/gains on hedging activities due to fair value changes $ (10,019) $ (9,010) $ 4,449 2. Unrealized gains on trading securities. The unrealized gains/(losses) on trading securities are reported on Farmer Mac's consolidated statements of operations, which represent changes during the period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the reporting period. 3. The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount). 4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to: • Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. • Initial cash payments received by Farmer Mac upon the inception of certain swaps. When there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. For GAAP purposes, changes in fair value of the swaps are recognized in "Gains on financial derivatives," while the economically offsetting discount on the associated hedged debt is amortized over the term of the debt as an adjustment to its yield. For purposes of core earnings, these initial cash payments are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years. 5. The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock in third quarter 2020 and Series B Preferred Stock in second quarter 2019 has been excluded from core earnings because they are not frequently occurring transactions, nor are they indicative of future operating results. 66 This is consistent with Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred stock. The next eligible preferred stock redemption date is in third quarter 2024. The following sections provide more detail about specific components of Farmer Mac's results of operations. Net Interest Income . The following table provides information about interest-earning assets and funding for the years ended December 31, 2020, 2019, and 2018. The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis. Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly. The average balance of loans in consolidated trusts with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities. The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts. Table 9 For the Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate Average Balance Income/ Expense Average Rate (dollars in thousands) Interest-earning assets: Cash and investments $ 4,180,158 $ 42,144 1.01 % $ 3,218,286 $ 81,522 2.53 % $ 2,723,136 $ 55,179 2.03 % Loans, Farmer Mac Guaranteed Securities and USDA Securities (1) 16,950,819 407,296 2.40 % 15,214,248 502,694 3.30 % 13,917,222 434,585 3.12 % Total interest-earning assets 21,130,977 449,440 2.13 % 18,432,534 584,216 3.17 % 16,640,358 489,764 2.94 % Funding: Notes payable due within one year 3,937,104 24,242 0.62 % 3,758,256 86,031 2.29 % 3,412,019 62,447 1.83 % Notes payable due after one year (2) 16,869,918 241,211 1.43 % 14,116,085 332,719 2.36 % 12,501,093 259,638 2.08 % Total interest-bearing liabilities (3) 20,807,022 265,453 1.28 % 17,874,341 418,750 2.34 % 15,913,112 322,085 2.02 % Net non-interest-bearing funding 323,955 — 558,193 — 727,246 — Total funding 21,130,977 265,453 1.26 % 18,432,534 418,750 2.27 % 16,640,358 322,085 1.94 % Net interest income/yield prior to consolidation of certain trusts 21,130,977 183,987 0.87 % 18,432,534 165,466 0.90 % 16,640,358 167,679 1.01 % Net effect of consolidated trusts (4) 1,396,850 6,601 0.47 % 1,544,052 7,669 0.50 % 1,443,394 6,757 0.47 % Net interest income/yield $ 22,527,827 $ 190,588 0.85 % $ 19,976,586 $ 173,135 0.87 % $ 18,083,752 $ 174,436 0.96 % (1) Excludes interest income of $54.1 million, $60.9 million, and $54.5 million in 2020, 2019, and 2018, respectively, related to consolidated trusts with beneficial interests owned by third parties. (2) Includes current portion of long-term notes. (3) Excludes interest expense of $47.5 million, $53.2 million, and $47.8 million in 2020, 2019, and 2018, respectively, related to consolidated trusts with beneficial interests owned by third parties. (4) Includes the effect of consolidated trusts with beneficial interests owned by third parties. 67 For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net interest income. This was partially offset by a $4.1 million increase in funding and liquidity costs and a decrease of $1.3 million in net fair value changes from designated financial derivatives as a result of fluctuations in interest rates. In percentage terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial derivatives, partially offset by an increase of 0.04% related to new business volume. For 2019 compared to 2018, the $1.3 million decrease in net interest income was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships, a $5.2 million increase in funding and liquidity costs and a $1.7 million decrease in cash-basis interest income. These factors were partially offset by: 1) $15.1 million from business volume, including: • $12.3 million in new business volume, • $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads, • and $0.9 million from consolidated trusts; and 2) $3.4 million in interest income fluctuations, including: • the absence of $2.0 million from the Interest-Only Amortization, and • the receipt of a $1.4 million prepayment penalty. The decrease of 0.09% was primarily attributable to a decrease of 0.06% in net fair value changes from designated financial derivatives and an increase of 0.05% in funding and liquidity costs, partially offset by an increase of 0.01% from business volume. The following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated. For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate), and changes in rate (change in rate multiplied by old volume), and then allocated based on the relative size of rate and volume changes from the prior period. Table 10 2020 vs. 2019 2019 vs. 2018 Increase/(Decrease) Due to Increase/(Decrease) Due to Rate Volume Total Rate Volume Total (in thousands) Income from interest-earning assets: Cash and investments $ (58,877) $ 19,499 $ (39,378) $ 15,253 $ 11,090 $ 26,343 Loans, Farmer Mac Guaranteed Securities and USDA Securities (148,159) 52,761 (95,398) 26,158 41,951 68,109 Total (207,036) 72,260 (134,776) 41,411 53,041 94,452 Expense from other interest-bearing liabilities (213,715) 60,418 (153,297) 54,225 42,440 96,665 Change in net interest income prior to consolidation of certain trusts (1) $ 6,679 $ 11,842 $ 18,521 $ (12,814) $ 10,601 $ (2,213) (1) Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties. 68 The following table presents a reconciliation of net interest income and net interest yield to net effective spread. Net effective spread is measured by: including (1) expenses related to undesignated financial derivatives, which consists of income or expense related to contractual amounts due on financial derivatives not designated in hedge relationships (the income or expense related to financial derivatives designated in hedge accounting relationships is already included in net interest income), and (2) the amortization of losses due to terminations or net settlements of financial derivatives; and excluding (3) the amortization of premiums and discounts on assets consolidated at fair value, (4) the net effects of consolidated trusts with beneficial interests owned by third parties, and (5) the fair value changes of financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread. Table 11 For the Years Ended December 31, 2020 2019 2018 Dollars Yield Dollars Yield Dollars Yield Net interest income/yield $ 190,588 0.85 % $ 173,135 0.87 % $ 174,436 0.96 % Net effects of consolidated trusts (6,601) 0.02 % (7,669) 0.03 % (6,757) 0.04 % Expense related to undesignated financial derivatives 3,468 0.02 % (5,095) (0.03) % (11,685) (0.07) % Amortization of premiums/discounts on assets consolidated at fair value 197 — % 398 — % 417 0.01 % Amortization of losses due to terminations or net settlements on financial derivatives 120 — % (68) — % (275) — % Fair value changes on fair value hedge relationships 9,184 0.04 % 7,907 0.04 % (4,941) (0.03) % Net effective spread $ 196,956 0.93 % $ 168,608 0.91 % $ 151,195 0.91 % For 2020 compared to 2019, the $28.3 million increase in net effective spread in dollars was primarily due to net business volume growth across most lines of business, which contributed $23.2 million to net effective spread, and a $4.6 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.02% was primarily attributable to new business volume. For 2019 compared to 2018, the $17.4 million increase in net effective spread in dollars was due to: 1) $14.2 million increase from business volume, including: • $12.3 million in net new business volume, • $1.9 million from the refinancing of existing Institutional Credit business volume at higher spreads; 2) $1.6 million in interest income fluctuations, including: • the absence of $2.0 million from the Interest-Only Amortization, • the receipt of a $1.4 million prepayment penalty, • partially offset by a $1.7 million decrease in cash-basis interest income; and 3) $1.6 million decrease in non-GAAP funding costs. 69 In percentage terms, net effective spread remained at 0.91% in both 2019 and 2018 primarily because the increase from the absence of the Interest-Only Amortization was offset by the decrease from narrower spreads on liquidity investment securities. See Note 14 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business. Provision for and Release of Allowance for Losses and Reserve for Losses . The following table summarizes the components of Farmer Mac's total allowance for losses for each year in the three-year period ended December 31, 2020: Table 12 Allowance for Losses Reserve for Losses Total Allowance for Losses (in thousands) Balance as of January 1, 2018 $ 6,796 $ 2,070 $ 8,866 Provision for losses 238 97 335 Charge-offs (17) — (17) Balance as of December 31, 2018 $ 7,017 $ 2,167 $ 9,184 Provision for/(release of) losses 3,504 (3) 3,501 Charge-offs (67) — (67) Balance as of December 31, 2019 $ 10,454 $ 2,164 $ 12,618 Cumulative effect adjustment from adoption of current expected credit loss standard 1,793 863 2,656 Adjusted beginning balance 12,247 3,027 15,274 Provision for/(release of) losses 7,810 250 8,060 Charge-offs (5,759) — (5,759) Ending balance $ 14,298 $ 3,277 $ 17,575 During 2020, the allowance and reserve for losses was impacted by the cumulative transition adjustment that we recorded related to the adoption of CECL and provisions for changes in risk ratings, economic factors, and net business volume growth during the year. The cumulative effect adjustment from the adoption of CECL on January 1, 2020 was $2.7 million and was recorded directly to retained earnings, net of tax. The transition adjustment was the difference between (1) the total allowance for losses on December 31, 2019 that reflected probable incurred losses under the previous accounting standard and (2) the total allowance for losses on January 1, 2020 that reflected expected losses under CECL. The cumulative effect adjustment for credit losses on on-balance sheet assets was $1.8 million after an increase of $5.4 million to the allowance for losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a $3.6 million decrease in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities. Although Farmer Mac has never experienced any credit losses in its portfolio of Rural Utilities loans and Farmer Mac Guaranteed Securities, our estimate of expected losses is based upon reasonable and supportable forecasts over the expected lives of these assets. The cumulative effect of CECL on the Farm & Ranch portfolio was a reduction in the allowance for losses on those loans and 70 Farmer Mac Guaranteed Securities that reflected the expected recovery rate based on loan-to-value ratios in those portfolios. The cumulative effect adjustment for credit losses on LTSPCs was $0.9 million after an increase of $1.0 million on Rural Utilities LTSPCs and a decrease of $0.1 million on Farm & Ranch LTSPCs. Our estimates of expected losses are based on historical information and reasonable and supportable forecasts. Our reasonable and supportable forecasts incorporate economic factor forecasts and are sensitive to changes in those economic factor forecasts. As of December 31, 2020, our forecasts included the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment expectations. The economic factor related to unemployment expectations had the most significant impact on our 2020 provision for credit losses, particularly on our estimate of expected losses in the Rural Utilities portfolio. Unemployment expectations did not affect our estimate of expected losses on the Farm & Ranch portfolio as much because of stable farm land values and improved credit quality in the Farm & Ranch portfolio during the year. The provision to Farmer Mac's allowance for losses for on-balance sheet assets was $7.8 million during 2020, reflecting $4.7 million for expected losses on Rural Utilities loans and a provision of $3.0 million on Farm & Ranch loans and Farmer Mac Guaranteed Securities. See Notes 8 and 12 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Guarantee and Commitment Fees . The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the years ended December 31, 2020, 2019, and 2018: Table 13 For the Years Ended December 31, 2020 2019 2018 (in thousands) Guarantee and commitment fees $ 12,549 $ 13,666 $ 13,976 In Farmer Mac's presentation of core earnings, guarantee and commitment fees include interest income and interest expense related to consolidated trusts owned by third parties to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. The decrease in guarantee and commitment fees for the year ended December 31, 2020 compared to 2019 was primarily due to decreased LTSPC volume. As adjusted for the core earnings presentation, guarantee and commitment fees were $19.2 million for 2020, compared to $21.3 million and $20.7 million for 2019 and 2018, respectively. For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." 71 (Losses)/gains on financial derivatives . The components of gains and losses on financial derivatives for the years ended December 31, 2020, 2019, and 2018 are summarized in the following table: Table 14 For the Years Ended December 31, 2020 2019 2018 (in thousands) (Losses)/gains due to fair value changes $ (3,691) $ 10,077 $ 7,958 Accrual of contractual payments 3,468 (5,095) (11,685) (Losses)/gains due to terminations or net settlements (23) 300 40 (Losses)/gains on financial derivatives $ (246) $ 5,282 $ (3,687) These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "(Losses)/gains due to terminations or net settlements" in the table above. For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. Changes in the fair value of these swaps are recognized immediately in "(Losses)/gains on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield. The amounts of initial cash payments received by Farmer Mac vary depending on the number of the aforementioned type of swaps it executes during a quarter. Other Income . The following table presents other income for years ended December 31, 2020, 2019, and 2018: Table 15 For the Years Ended December 31, 2020 2019 2018 (in thousands) Late fees $ 1,292 $ 1,135 $ 1,258 Other 2,195 769 119 Total other income $ 3,487 $ 1,904 $ 1,377 The increase in other fees is primarily due to an increase in the fees received from borrowers to modify their long-term fixed borrowing rate to a new lower rate. 72 Operating Expenses . The components of operating expenses for the years ended December 31, 2020, 2019, and 2018 are summarized in the following table: Table 16 For the Years Ended December 31, 2020 2019 2018 (in thousands) Compensation and employee benefits $ 36,502 $ 28,762 $ 27,534 General and administrative 21,976 20,311 19,707 Regulatory fees 2,925 2,788 2,562 Total Operating Expenses $ 61,403 $ 51,861 $ 49,803 a. Compensation and Employee Benefits . The increase in compensation and employee benefits expenses for 2020 compared to 2019 was primarily due to increased headcount in the current period, higher bonus expense, and severance payments made to an executive who resigned in first quarter 2020. The increase in compensation and employee benefits in 2019 compared to 2018 was primarily due to hiring of executives and related employee health insurance costs. b. General and Administrative Expenses (G&A) . The increase in G&A expenses for 2020 compared to 2019 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives. The increase in G&A expenses in 2019 compared to 2018 was due to various growth, strategic, and compliance initiatives in 2019. Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the years ended December 31, 2020, 2019, and 2018: Table 17 For the Years Ended December 31, 2020 2019 2018 (dollars in thousands) Income tax expense $ 28,785 $ 29,105 $ 27,942 Effective tax rate 20.9 % 20.9 % 20.5 % 73 Business Volume . The following table sets forth the net growth or decrease under Farmer Mac's lines of business for the years ended December 31, 2020, 2019, and 2018: Table 18 Net New Business Volume – Farmer Mac Loan Purchases, Guarantees, LTSPCs, and AgVantage Securities For the Years Ended December 31, 2020 2019 2018 Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) (in thousands) Farm & Ranch: Loans $ 1,213,754 $ 604,418 $ 272,316 Loans held in trusts: Beneficial interests owned by third party investors (313,872) 83,816 117,273 LTSPCs (95,650) (145,257) (23,204) USDA Guarantees: USDA Securities 256,461 83,023 52,537 Farmer Mac Guaranteed USDA Securities (89,918) 21,532 110,870 Rural Utilities: Loans 589,119 732,450 (137,448) LTSPCs (52,853) (43,994) (153,069) Institutional Credit: AgVantage securities (700,887) 357,429 477,939 AgVantage revolving line of credit facility (1) — (300,000) — Total purchases, guarantees, LTSPCs, and AgVantage securities $ 806,154 $ 1,393,417 $ 717,214 (1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid. During 2018, $100.0 million of this facility was drawn and later repaid. The facility was terminated during fourth quarter 2019. Our outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of $806.2 million from December 31, 2019 after taking into account all new business, maturities, and repayments on existing assets. This net increase was primarily attributable to net increases of $804.2 million in Farm & Ranch, $536.3 million in Rural Utilities, and $166.5 million in USDA Guarantees. The net increases were partially offset by a net decrease of $700.9 million in the Institutional Credit line of business. The $804.2 million net increase in our Farm & Ranch line of business reflected a $1.2 billion net increase in outstanding loan purchase volume that was partially offset by net decreases of $313.9 million in loans held in consolidated trusts and $95.7 million in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. Included in the $1.2 billion net increase in outstanding loan purchase volume is a growing proportion of larger loan exposures (generally loan commitments more than $10 million) to agribusinesses that support agriculture production, food and fiber processing, and other supply chain production. The net growth in 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with borrowers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs. We broadened and deepened our market share as evidenced by gross new loan purchase volume increasing 82%, or $1.1 billion, versus 2019. Of this gross new loan purchase volume, 80% is attributable to active lenders (lenders selling Farmer Mac volume in 2020 and 2019) and 20% is attributable to new or previously inactive lenders. We 74 deepened our relationship with our lenders as evidenced by an 80% increase in the number of lenders selling us loans totaling $1 million or more versus the prior year period. Our net growth of 17.1% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended December 31, 2020 is significantly higher than the 5.0% net growth of the overall agricultural mortgage loan market over the twelve months ended September 30, 2020 (based on our analysis of bank and Farm Credit System call report data). During 2020, Farmer Mac syndicated a $15.0 million position of a newly purchased $59.2 million agricultural loan. This transaction represents new activity for Farmer Mac to broaden its relationships across the agricultural lending spectrum. Our USDA Guarantees line of business grew by $166.5 million in 2020. Our gross volume of $777.9 million was the highest gross volume that we have ever recorded in any calendar year. This growth reflected the positive effect of adjustments that we made to our product structure in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased USDA loan limits permitted by the 2018 Farm Bill. The $700.9 million net decrease in the Institutional Credit line of business during 2020 was due primarily to three large counterparties who reduced their amount of outstanding credit in connection with scheduled maturities and payments on multiple AgVantage bonds. The year-over-year changes in AgVantage securities volume are primarily driven by the generally larger transaction sizes for that product, scheduled maturity amounts, the liquidity needs of Farmer Mac’s AgVantage counterparties, and changes in the pricing and availability of wholesale funding. The $536.3 million net increase in our Rural Utilities line of business reflected a $589.1 million net increase in outstanding loan purchase volume that was partially offset by a $52.9 net decrease in loans under LTSPCs. During 2020, we funded $64.3 million of loans for solar and wind projects as part of our renewable energy strategic initiative. The level and composition of Farmer Mac’s outstanding business volume is based on the relationship between new business, maturities, and repayments on existing assets from quarter to quarter. This relationship in turn depends on a variety of factors both internal and external to Farmer Mac. The external factors include general market forces, competition, and our counterparties’ liquidity needs, access to alternative funding, desired products, and assessment of strategic factors. The internal factors include our assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report. The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the periods indicated: Table 19 For the Years Ended December 31, 2020 2019 2018 (in thousands) Loans securitized and sold as Farm & Ranch Guaranteed Securities $ 165,054 $ 263,561 $ 255,078 Farmer Mac Guaranteed USDA Securities — 57,853 127,851 AgVantage securities 1,298,751 2,258,550 3,010,307 Total Farmer Mac Guaranteed Securities Issuances $ 1,463,805 $ 2,579,964 $ 3,393,236 75 Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac Guaranteed Securities backed by those loans. The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both 2020 and 2019 was less than one year. Of those loans, 45% and 50% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 19.8 years and 14.2 years for each period, respectively. During 2020 and 2019, Farmer Mac securitized some of the Farm & Ranch loans it had purchased and sold the resulting Farmer Mac Guaranteed Securities, as shown above. During 2020 and 2019, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities. Farmer Mac consolidates these loans and presents them as "Loans held for investment in consolidated trusts, at amortized cost" on the consolidated balance sheets. For 2020, 2019 and 2018, $41.2 million, $163.1 million and $68.7 million, respectively, of Farmer Mac Guaranteed Securities were sold to a related party (related by virtue of its owning more than 10% of Farmer Mac's Class A voting common stock). The following table sets forth information about outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated: Table 20 Lines of Business - Outstanding Business Volume As of December 31, 2020 2019 2018 (in thousands) Farm & Ranch: Loans $ 4,889,393 $ 3,675,640 $ 3,071,222 Loans held in trusts: Beneficial interests owned by third party investors 1,287,045 1,600,917 1,517,101 LTSPCs 2,325,431 2,393,071 2,509,787 Guaranteed Securities 79,312 107,322 135,862 USDA Guarantees: USDA Securities 2,452,964 2,199,072 2,120,553 Farmer Mac Guaranteed USDA Securities 333,754 421,103 395,067 Rural Utilities: Loans 2,260,412 1,671,293 938,843 LTSPCs 556,425 609,278 653,272 Institutional Credit AgVantage Securities 7,739,359 8,440,246 8,082,817 Revolving floating rate AgVantage facility (1) — — 300,000 Total $ 21,924,095 $ 21,117,942 $ 19,724,524 (1) During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid. During 2018, $100.0 million of this facility was drawn and later repaid. The facility was terminated during fourth quarter 2019. 76 The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of December 31, 2020: Table 21 Schedule of Principal Amortization as of December 31, 2020 Loans Held Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs USDA Securities and Farmer Mac Guaranteed USDA Securities Total (in thousands) 2021 $ 354,984 $ 253,508 $ 117,226 $ 725,718 2022 343,208 230,490 121,173 694,871 2023 356,542 209,665 125,543 691,750 2024 350,961 185,040 123,667 659,668 2025 384,864 188,737 126,479 700,080 Thereafter 6,646,291 1,893,728 2,172,630 10,712,649 Total $ 8,436,850 $ 2,961,168 $ 2,786,718 $ 14,184,736 Of the $21.9 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of December 31, 2020, $7.7 billion were AgVantage securities included in the Institutional Credit line of business. Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of December 31, 2020: Table 22 AgVantage Balances by Year of Maturity As of December 31, 2020 (in thousands) 2021 $ 1,823,932 2022 1,565,655 2023 1,045,738 2024 864,090 2025 231,025 Thereafter (1) 2,208,919 Total $ 7,739,359 (1) Includes various maturities ranging from 2026 to 2044. The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.9 years as of December 31, 2020. 77 Related Party Transactions . As provided by Farmer Mac's statutory charter, only banks, insurance companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common stock. Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock elect five members of the board of directors. The ownership of Farmer Mac's two classes of voting common stock is currently concentrated in a small number of institutions. Approximately 45% of the Class A voting common stock is held by three financial institutions, with 31% held by one institution. Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which are related to each other through a parent-subsidiary relationship). Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. Farmer Mac, as a stockholder-owned, publicly-traded corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac. Farmer Mac's policy is to generally require financial institutions to own a requisite amount of common stock, based on the size and type of institution, to participate in the Farm & Ranch line of business. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac. The following table summarizes the material relationships between Farmer Mac and certain related parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a class of Farmer Mac voting common stock as of December 31, 2020 and (2) other institutions that are considered "related parties" through an affiliation with a Farmer Mac director and that have conducted business with Farmer Mac during the two years ended December 31, 2020. The table below does not specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series of preferred stock. Table 23 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgFirst Farm Credit Bank 84,024 shares of Class B voting common stock (16.79% of outstanding Class B stock and 5.49% of total voting common stock outstanding) None In both 2020 and 2019, Farmer Mac earned approximately $1.2 million in fees attributable to transactions with AgFirst, primarily commitment fees for LTSPCs. 78 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac AgriBank, FCB 201,621 shares of Class B voting common stock (40.30% of outstanding Class B stock and 13.17% of total voting common stock outstanding) Farmer Mac directors Richard H. Davidson and Daniel L. Shaw serve as directors of AgriBank. Farmer Mac did not conduct any business with AgriBank during 2020 or 2019. Bath State Bank Less than 5% ownership Farmer Mac director Dennis L. Brack serves as a director of Bath State Bank and Bath State Bancorp, the holding company of Bath State Bank. Farmer Mac purchased $9.2 million and $4.0 million in USDA Securities from Bath State Bank in 2020 and 2019, respectively. CoBank, ACB 163,253 shares of Class B voting common stock (32.63% of outstanding Class B stock and 10.66% of total voting common stock outstanding) Farmer Mac director Everett M. Dobrinski served as a director of CoBank through December 2019. Farmer Mac purchased $416.8 million and $776.4 million in participation interests in loans from CoBank in 2020 and 2019, respectively. This represented 56.0% and 89.1% of loan purchases under the Rural Utilities line of business for 2020 and 2019, respectively. In 2020 and 2019, CoBank retained $2.3 million and $1.2 million of servicing fees related to the loan participations sold to Farmer Mac, respectively. Farm Credit Bank of Texas (FCBT) 38,503 shares of Class B voting common stock (7.70% of outstanding Class B stock and 2.51% of total voting common stock outstanding) None In 2020 and 2019, Farmer Mac earned approximately $1.2 million and $1.1 million, respectively, in fees attributable to transactions with FCBT, primarily commitment fees for LTSPCs. In both 2020 and 2019, FCBT retained approximately $0.1 million in servicing fees for its work as a Farmer Mac servicer. Matthew 25 Management Corp. 85,241 shares of Class A voting common stock (8.27% of outstanding Class A stock and 5.57% of total voting common stock outstanding) None Farmer Mac did not conduct any business with Matthew 25 Management Corp. during 2020 or 2019. 79 Name of Institution Ownership of Farmer Mac Voting Common Stock Affiliation with Any Farmer Mac Directors Primary Aspects of Institution's Business Relationship with Farmer Mac National Rural Utilities Cooperative Finance Corporation (CFC) 81,500 shares of Class A voting common stock (7.91% of outstanding Class A stock and 5.32% of total voting common stock outstanding) Farmer Mac director Todd P. Ware serves as a director of CFC. Transactions with CFC represented 36.7% and 9.8% of loan purchases under the Rural Utilities line of business during 2020 and 2019, respectively. In 2020 and 2019, Farmer Mac earned commitment fees of approximately $1.3 million and $1.7 million, respectively, attributable to transactions with CFC. In 2020 and 2019, Farmer Mac earned interest income of $63.1 million and $97.3 million, respectively, attributable to AgVantage transactions with CFC. In 2020 and 2019, CFC retained approximately $3.3 million and $3.2 million, respectively, in servicing fees for its work as a Farmer Mac servicer. The Vanguard Group, Inc. 49,999 shares of Class A voting common stock (4.85% of outstanding Class A stock and 3.27% of total voting common stock outstanding) None Farmer Mac did not conduct any business with The Vanguard Group during 2020 or 2019. Zions Bancorporation, National Association (Zions) 322,100 shares of Class A voting common stock (31.25% of outstanding Class A stock and 21.04% of total voting common stock outstanding) None In 2020 and 2019, Farmer Mac's purchases of loans from Zions under the Farm & Ranch line of business represented approximately 7.1% and 9.5%, respectively, of Farm & Ranch loan purchase volume for those years. Those purchases represented 6.2% and 7.6%, respectively, of total Farm & Ranch business volume for those years. The purchases of USDA Securities from Zions under the USDA Guarantees line of business represented approximately 1.4% and 2.1%, respectively, of the USDA Guarantees line of business purchases for the years ended December 31, 2020 and 2019. Transactions with Zions represented 4.1% and 4.5%, respectively, of Farmer Mac's total outstanding business volume as of December 31, 2020 and 2019. In 2020 and 2019, Zions retained approximately $11.8 million and $12.2 million, respectively, in servicing fees for its work as a Farmer Mac servicer. As discussed in more detail in Note 2(n) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of VIEs in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party. If that related party status changes, consolidation or deconsolidation of securitization trusts may occur. For more information about related party transactions, see Note 3 to the consolidated financial statements. 80 Outlook Farmer Mac continues to provide a stable source of liquidity, capital, and risk management tools as the secondary market that helps meet the financing needs of rural America. The pace of Farmer Mac’s growth will depend on the capital and liquidity needs of the lending institutions in the agricultural and rural utilities business as well as the overall health of borrowers in the sectors we serve. Farmer Mac foresees opportunities for profitable growth across our lines of business driven by several key factors: • As agricultural and rural utilities lenders seek to manage equity capital and return on equity capital requirements or seek to reduce exposure due to lending or concentration limits, Farmer Mac can provide relief for those institutions through loan and portfolio purchases, participations, guarantees, LTSPCs, or wholesale funding. • While prospects for overall loan growth within the rural utilities industry appears to be moderate in the near term due to slow growth in the demand for capital, future growth opportunities may increase in Farmer Mac’s Rural Utilities line of business from deepening business relationships with eligible counterparties, broadband-related capital expenditures, and the exploration of new types of loan products. These opportunities may be limited by sector growth, credit quality, and the competitiveness of Farmer Mac’s products. • As a result of business and product development efforts and continued interest in the agricultural asset class from institutional investors, Farmer Mac’s customer base and product set continue to expand, which may generate more demand for Farmer Mac’s products from new sources. • Consolidation within the agricultural finance industry, coupled with Farmer Mac’s relationships with larger regional and national lenders, continue to provide opportunities that could influence Farmer Mac’s loan demand and increase the average transaction size within Farmer Mac’s Farm & Ranch line of business. • Expansion and refinancing opportunities for agricultural producers resulting from a decrease in interest rates have increased financing requirements for mergers and acquisitions, consolidation, and vertical integration across many sectors of the agricultural industry, which may also generate demand for Farmer Mac’s loan products. The COVID-19 pandemic and related efforts to contain it continue to create disruptions to the global economy. Government stimulus programs designed to mitigate the economic impacts of the pandemic, as well as significant liquidity support by the Federal Reserve to facilitate the functioning of the capital markets, has reduced volatility to the economy and the sectors we serve. But the duration, severity, and continued spread of COVID-19, the effectiveness and availability of vaccines, and ongoing government efforts taken to contain COVID-19 and mitigate public health and economic effects continue to evolve and remain uncertain. Farmer Mac’s mission is to support rural America during this pandemic, and the disruptions caused by COVID-19 may present some new and expanded opportunities for Farmer Mac to help meet the financing needs of rural America while also presenting uncertainties and risks. COVID-19 has highlighted the importance of a healthy and stable global food supply chain, as well as the need for increased connectivity through rural broadband. These market conditions could result in increased investment in the supply chain for food, fuel, fiber, energy, and broadband, all of which require access to low-cost, long-term capital. Farmer Mac can provide a source of secondary market liquidity to help stimulate capital deployment to help facilitate these investments while continually monitoring potential market and sector volatility associated with the ongoing impacts of the pandemic. See "Risk Factors" in 81 Part II, Item 1A of this report for more information about the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business. Operating Expense . Farmer Mac continues to expand its investments in human capital, technology, and business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth opportunities and achieve its long-term strategic objectives. Farmer Mac expects continued increases in its operating expenses over the next several years corresponding to business and revenue growth. We expect these efforts to continue and increase over the next 12 - 18 months as we innovate and grow our business while monitoring the growth in operating expenses commensurate with the growth in our revenue. Operations . On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating uninterruptedly since then, with all of its employees working remotely from their homes. Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and business continuity plan have been functioning as designed in support of all functions of the organization with no material disruption of business. As a secondary market participant in the agricultural and rural utility lending space, Farmer Mac's business model is already based on a remote interface with its customers and vendors. We do not expect Farmer Mac's remote-working environment to have a material effect on our operations either in the near term or for the foreseeable future. Agricultural Industry . Like most industries, the COVID-19 pandemic heavily impacted the U.S. agricultural and food sectors throughout 2020. According to advance sales data from the U.S. Census Bureau, regional school and restaurant closures combined with consumer social distancing precautions caused a 53% drop in food and beverage sales away from home in April 2020. Sales at food and beverage places ended the year 19% below 2019 levels. Meat and poultry processing plants experienced widespread closures in April and May, as the Center for Disease Control (CDC) reported more than 239 facilities affected by COVID-19 outbreaks in 23 states. According to data from the U.S. Energy Information Administration, ethanol production fell to 50% of 2019 levels in April 2020 as gasoline consumption fell amid closures and reduced mobility. Ethanol is a primary demand driver for corn, so the sudden demand shock caused downward pressure on grain commodity prices. The USDA corn price index hit a 10-year low in April 2020. Despite these pressures, the agricultural and food sectors endured with a strong finish in 2020. Food consumption at home picked up considerably, with U.S. Census data showing an 11% increase in sales at food and beverage stores in 2020 compared to 2019. USDA research shows that farm production and food processing take a higher net margin of the food dollar spent at home, so the shift of consumer spending to food at home could offset some or all of the losses from sales to restaurants and schools. Consumer mobility increased steadily in the second half of 2020, restoring fuel demand and pushing ethanol production back to 88% of 2019 levels by December. Record government support payments to farmers and ranchers helped offset the mid-year disruptions. The USDA estimates total farm program payments to farmers at over $46 billion for the year, a combination of typical farm programs, payments from the trade-oriented Market Facilitation Program (MFP), forgivable loans from the Paycheck Protection Program (PPP), and two rounds of Coronavirus Food Assistance Program (CFAP) payments. Finally, reduced global supply of grains and increased export demand for grains combined to push world grain prices to 7-year highs. USDA corn and soybean cash price indices closed the year 30% and 42% above 2019 levels, respectively. Of the major agricultural commodities, only cattle and dairy prices did not end the year higher than when it began. 82 The rebound in commodity prices combined with extensive government support payments led to a large increase in sector-wide profitability for 2020. USDA projections for net farm income and net cash farm income in 2020 are the highest levels since 2013 at $121.1 billion and $136.2 billion, respectively. An average year generates approximately $100 billion in net farm income, so both 2020 metrics are well above historical averages. A small decline in cash expenses due to a reduction in interest expense added to improved profitability. Animal protein and specialty crop producers did not fully participate in the increase, as higher labor, feed, and other input costs partially offset any gains in cash receipts. Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash farm income due to a reduction in government support payments but an increase in grain cash receipts. Higher profitability and lower overall interest rates allow sector participants to refinance and restructure their balance sheets with more favorable terms, driving deal flow and lender competition. Farmland values held steady throughout much of 2020 after rising at approximately the rate of inflation for the last two years. Data released in August 2020 by the USDA indicates an average increase in farm real estate values of 0.2% in 2020 in Corn Belt states (Illinois, Indiana, Iowa, Missouri, and Ohio), but a decrease of 2.3% in Northern Plains states (Kansas, Nebraska, North Dakota, and South Dakota). In all other regions, farmland value averages are reported to be flat to increasing. The COVID-19 pandemic slowed public auctions and sales in the first half of 2020, but transactions picked up in the third and fourth quarters, and values trended higher in the fourth quarter. An improved profitability outlook combined with low market interest rates could provide support for land values into 2021. Early estimates from the USDA show a 2% increase in farm real estate in 2021. Historically, rising farm real estate values are paired with an increase in real estate-secured debt. While regional averages for farmland values provide a good barometer for the overall movement in U.S. farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility than state or national averages indicate. As a result of improved profitability and an injection of working capital into the sectors, Farmer Mac's 90-day delinquencies and substandard assets decreased in fourth quarter 2020. Forty-four percent of the loans past due 90-days or more in third quarter 2020 cured or paid off by December 31, 2020. However, the ongoing COVID-19 pandemic and the potential for continued economic stress increase the level of uncertainty inherent in the agricultural credit sector and could alter the trajectory of the current agricultural cycle. A prolonged disruption may result in elevated loan delinquencies and a higher percentage of loans rated substandard. Farmer Mac believes that its portfolio continues to be highly diversified, both geographically and by commodity, and that its portfolio has been underwritten to high credit quality standards. Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably foreseeable volatility in commodity prices and farmland values. For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of December 31, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." Apart from the COVID-19 pandemic, three exogenous factors will continue to be a source of heightened uncertainty for the agricultural and food sectors: international trade, weather conditions, and state and federal farm policy. The U.S. agricultural sector has become increasingly dependent on foreign markets as a source of demand. Agriculture exports were strong in 2020, aided by a weaker U.S. dollar, a recovery in Chinese hog production and subsequent demand for feed inputs, and better overall trade relations. The U.S. experienced $22 billion in severe weather disasters in 2020, the highest level in the 40 years tracked 83 by the National Oceanic and Atmospheric Administration. Many of those events affected agriculture, including a midwestern derecho, western wildfires, and western drought. Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face increasingly-severe weather incidents. For more information about the recent Texas Arctic Freeze, please refer to the separate section below. Farmer Mac closely monitors state and federal legislation and regulations that could affect U.S. agriculture. Democrats took control of the White House, the U.S. House of Representatives, and the U.S. Senate in 2021. Although party control has not historically correlated with the availability of government farm payments, there could be changes in regulatory or tax policies that could affect the U.S. agricultural and food sectors. Farmer Mac continues to monitor the effects that any changes in legislation or regulation could have on Farmer Mac or its customers. Rural Utilities Industry . The rural energy industry has less cyclicality than the agricultural sector, but does trend with conditions in the general economy. Higher levels of unemployment and adverse credit markets are typically associated with drops in energy demand (i.e., lower commercial, industrial, or residential demand) and increases in industry ratings downgrades. The economic distress caused by the COVID-19 pandemic has led to historic levels of unemployment and reduced energy demand from the commercial and industrial sectors. According to data from the U.S. Energy Information Administration, electricity sales to commercial and industrial consumers dropped 8% year-to-date through November 2020 compared to 2019. However, residential sales during the same period were up 2% compared to 2019, as residents spent more time at home during state, local, and self-imposed quarantines. Residential power sales are typically significantly more profitable than those for commercial and industrial consumers, so some of the profitability reduction from the loss of commercial and industrial sales can be offset by the change in sales mix. Sector sales mix varies from utility to utility based on the characteristics of the region served, so the degree of profitability offset may differ. Some rural electric cooperatives received forgivable loans through the Paycheck Protection Program (PPP), which are another potential source to offset any profitability reduction. The COVID-19 pandemic has also highlighted the greater need for and interest in access to broadband internet in rural areas, and the CARES Act authorized more than $300 million to support healthcare industry telecommunications and rural broadband grants. Farmer Mac expects the heightened level of uncertainty surrounding the economic impacts of COVID-19 to continue into 2021. Through December 31, 2020 Farmer Mac had not observed material degradation in the financial performance of its Rural Utilities portfolio. During 2020, the sudden decrease of interest rates to historic lows drove significant financing activity on the part of rural electric cooperatives. Prospects for loan growth within the rural utilities industry overall appear to be moderate in the short to medium term as ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure continue at typical levels. Farmer Mac's future growth opportunities for financing the electric cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a low interest rate environment, and competitive dynamics within the rural utilities cooperative finance industry. In December 2020, the Federal Communication Commission’s Rural Digital Opportunity Fund (RDOF) auction awarded $9.2 billion in broadband-related operating cost subsidies to winning bidders. This may provide a catalyst for capital demands from rural electric cooperatives who seek to develop and deploy broadband services, as over $1.5 billion in subsidies were awarded to various rural electric cooperatives. The cooperatives that were unsuccessful RDOF bidders also gained knowledge about the processes and technologies involved in broadband projects, which may enable them to develop broadband infrastructure. In particular, these capital needs may provide Farmer Mac with new financing opportunities with our existing customers. 84 The growth in renewable energy generation and deployment of energy storage technologies may help deepen Farmer Mac's relationships with existing customers through new business opportunities with them. This growth may also broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable cooperatives. In response to this growth, Farmer Mac has deployed new financing products tailored to the renewable energy sector, which represents a new market opportunity for Farmer Mac. Under this new program, Farmer Mac purchased solar project participation interests from a new counterparty during first quarter 2020, wind project participation interests from an existing counterparty in third quarter 2020, and loans from a new counterparty in fourth quarter 2020. Farmer Mac anticipates further growth in this area during 2021. As of December 31, 2020 the total outstanding balance of Farmer Mac’s renewable energy financing portfolio was $73.0 million. Tex a s Arctic Freeze . Farmer Mac is carefully monitoring the effects of the extremely cold weather during mid-February 2021 in the mid-south region, particularly in Texas, on both our agricultural and rural infrastructure portfolios. As of December 31, 2020, our agricultural portfolio exposure in Texas was approximately $611 million, with cattle being the largest commodity exposure. Cattle producers in that region could face animal health issues as a result of the freezing conditions, but most of our other commodity exposures in that region are less likely to be significantly affected by these conditions. As of December 31, 2020, our rural infrastructure portfolio exposure in Texas was approximately $377 million and is split between distribution and generation and transmission cooperatives. All these cooperatives were affected in some way by the arctic freeze such as obstacles in receiving fuel for power plants or the inability to obtain contracted electricity, which resulted in rolling blackouts across the state. We believe that the electric cooperatives in our portfolio located in Texas entered this period of stress in a strong financial position (including revolving lines of credit) to absorb cost increases. Most of these electric cooperatives have fuel or power cost pass-through provisions within their rate-making authority which provides flexibility to recoup market price fluctuations. It is unknown at this time what magnitude of cost pass-throughs will be required to pay for additional energy costs and whether there will be new regulatory barriers to implementing them. As of February 25, 2021, we are not aware of any damage from the arctic freeze that would likely result in a material credit loss in either our agricultural portfolio or our rural infrastructure portfolio. 85 Balance Sheet Review The following table summarizes the balance sheet as of the periods indicated: Table 24 As of Change December 31, 2020 December 31, 2019 $ % (in thousands) Assets Cash and cash equivalents $ 1,033,941 $ 604,381 $ 429,560 71 % Investment securities, net of allowance 3,898,724 3,004,875 893,849 30 % Farmer Mac Guaranteed Securities, net of allowance 8,123,493 8,590,476 (466,983) (5) % USDA Securities 2,480,321 2,241,073 239,248 11 % Loans, net of allowance 8,535,146 6,981,440 1,553,706 22 % Other 283,876 287,129 (3,253) (1) % Total assets $ 24,355,501 24,355,501 $ 21,709,374 $ 2,646,127 12 % Liabilities Notes Payable 21,848,917 19,098,648 2,750,269 14 % Other 1,514,107 1,811,450 (297,343) (16) % Total liabilities $ 23,363,024 $ 20,910,098 $ 2,452,926 12 % Total equity 992,477 799,276 193,201 24 % Total liabilities and equity $ 24,355,501 $ 21,709,374 $ 2,646,127 12 % Assets . The increase in total assets was primarily attributable to the net growth in our outstanding business volume across most lines of business. The increase in cash and cash equivalents and investment securities was primarily due to a decision to increase our liquidity investment portfolio due to the COVID-19 pandemic and to support our program asset growth. Liabilities . The increase in total liabilities was primarily due to an increase in total notes payable to support our program asset growth. Equity . The increase in total equity was primarily due to the issuance of the Series E Preferred Stock and the Series F Preferred Stock and an increase in net income. These increases were partially offset by the redemption of the Series A Preferred stock and an increase in other comprehensive losses, net of tax, primarily due to decreases in the fair value of available-for-sale securities and financial derivatives designated in cash flow hedge accounting relationships. Risk Management Credit Risk – Loans and Guarantees . COVID-19 Farmer Mac continues to monitor the effects of the COVID-19 pandemic on Farmer Mac's credit risk related to Farmer Mac's borrower exposures. In mid-2020, Farmer Mac experienced an increase in payment deferment requests from its network of loan servicers on behalf of borrowers in Farmer Mac's 86 Farm & Ranch loan portfolio, although deferment requests were below our expectations. Our early expectations for payment deferment requests were based on forecasts provided by other GSEs and other Farm Credit System institutions. To address the requests that we have received, Farmer Mac has established criteria for approval of payment deferments for borrowers impacted by the COVID-19 pandemic and have communicated these criteria to key counterparties. Farmer Mac will monitor the criteria as the impact of the pandemic continues to unfold and determine if any changes should be made. Most of the payment deferments Farmer Mac has approved and executed for loans it has purchased or securitized in its Farm & Ranch portfolio have been for up to six months, with the deferred principal and interest payments capitalized into the unpaid principal balance of the loan. The unpaid principal balance is then re-amortized over the remaining term of the loan. Approved and executed payment deferments for loans in LTSPCs have varied from three-month payment deferments for principal and interest to deferred interest-only payments for up to twelve months, depending on the applicable LTSPC lender's deferment policy. As of December 31, 2020, we have executed payment deferments in the Farm & Ranch and USDA Securities portfolios related to an aggregate of $432.0 million of unpaid principal balances, which represents 1.97% of our total outstanding business volume. In addition, FCA has issued regulatory guidance encouraging Farmer Mac to work with its lending and servicing partners in approving and executing servicing actions for borrowers impacted by COVID-19. The table below presents a cumulative summary of COVID-19 payment deferments through December 31, 2020 in the Farm & Ranch and USDA Guarantees lines of business. Farmer Mac has not received any payment deferment requests in the Rural Utilities line of business. For more information about FCA's regulatory guidance related to the COVID-19 pandemic, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters." Table 25 Farm & Ranch COVID-19 Deferments Summary As of December 31, 2020 (1) Unpaid Principal Balance Requested, but not yet Approved Approved, but not yet Executed Not Approved (2) Approved and Executed Farm & Ranch: (in thousands) On-balance sheet: Loans held for investment $ 286 $ 675 $ — $ 118,903 Loans held in consolidated trusts — 2,005 1,140 26,564 On-balance sheet total $ 286 $ 2,680 $ 1,140 $ 145,467 Off-balance sheet: LTSPCs 585 8,144 3,502 193,665 Farm & Ranch Total $ 871 $ — $ 10,824 $ 4,642 $ 339,132 USDA: USDA Securities $ 11,664 $ — $ 5,081 $ 86,703 Farmer Mac Guaranteed USDA Securities 946 — 382 6,189 USDA Total $ 12,610 $ — $ 5,463 $ 92,892 Farm & Ranch and USDA Total Deferments $ 13,481 $ 10,824 $ 10,105 $ 432,024 (1) Loans under a COVID-19 deferment are not considered to be past due. (2) Typically due to the borrower withdrawing from the COVID-19 deferment process. For example, the borrower may have refinanced the loan, paid off the loan, or decided not to pursue payment relief. 87 Farm & Ranch Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of December 31, 2020 was $8.6 billion across 48 states. Farmer Mac applies credit underwriting standards and methodologies to help assess exposures to Farm & Ranch loans, which may include collateral valuation, financial metrics, and other appropriate borrower financial and credit information. For larger loan exposures to agriculture production and agribusinesses that support agriculture production, food and fiber processing, and other supply chain production, which may have different risk profiles, Farmer Mac has implemented methodologies and parameters that help assess credit risk based on the appropriate sector, borrower construct, and transaction complexity. For more information about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards". Farmer Mac has indirect credit exposure to the Farm & Ranch loans that secure AgVantage securities included in the Institutional Credit line of business. As of December 31, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities. Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity. Loan-to-value ratios depend on the market value of a property, as determined in accordance with Farmer Mac's collateral valuation standards. As of December 31, 2020 and December 31, 2019, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $742,000 and $683,000, respectively. Farmer Mac calculates the "original loan-to-value" ratio of a loan by dividing the original loan principal balance by the original appraised property value. This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value. The original loan-to-value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-loan basis. The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during 2020 was 54%, compared to 51% for loans purchased during 2019. The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 52% and 51% as of December 31, 2020 and December 31, 2019, respectively. The weighted-average original loan-to-value ratio for all 90-day delinquencies was 50% and 53% as of December 31, 2020 and December 31, 2019, respectively. The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 46% and 45% as of December 31, 2020 and December 31, 2019, respectively. For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Notes 8 and 12 to the consolidated financial statements. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses." Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in foreclosure and non-performing loans where the borrower is in bankruptcy. As of December 31, 2020, Farmer Mac's 90-day delinquencies were $46.2 million (0.54% of the Farm & Ranch portfolio), compared 88 to $61.0 million (0.78% of the Farm & Ranch portfolio) as of December 31, 2019. Those 90-day delinquencies were comprised of 38 delinquent loans as of December 31, 2020, compared to 57 delinquent loans as of December 31, 2019. The decrease in 90-day delinquencies was primarily driven by three commodity groups – permanent plantings, livestock, and part-time farms. The decreases in those commodity groups were partially offset by increases related to the agricultural storage & processing loan secured by a specialized poultry facility and multiple crop loans. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of December 31, 2020. Loans under COVID-19 deferment are not considered past due and are not included in our delinquent loan statistics. Farmer Mac believes that it remains adequately collateralized on its delinquent loans. Our 90-day delinquency rate as of December 31, 2020 was below Farmer Mac's historical average. In the near-term, our delinquency rate may exceed our historical average due to the expected impact of the COVID-19 pandemic on the agricultural economy. Farmer Mac's average 90-day delinquency rate as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 1%. The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol loan portfolio that Farmer Mac no longer holds. The following table presents historical information about Farmer Mac's 90-day delinquencies in the Farm & Ranch line of business compared to the unpaid principal balance of all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs: Table 26 Farm & Ranch Line of Business 90-Day Delinquencies Percentage (dollars in thousands) As of: December 31, 2020 $ 8,581,181 $ 46,232 0.54 % September 30, 2020 8,249,349 88,041 1.07 % June 30, 2020 8,017,850 68,682 0.86 % March 31, 2020 7,811,594 79,722 1.02 % December 31, 2019 7,776,950 60,954 0.78 % September 30, 2019 7,393,728 59,691 0.81 % June 30, 2019 7,291,352 28,045 0.38 % March 31, 2019 7,215,585 52,366 0.73 % December 31, 2018 7,233,971 26,881 0.37 % Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.21% of total outstanding business volume as of December 31, 2020, compared to 0.29% as of December 31, 2019 and 0.14% as of December 31, 2018. The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of December 31, 2020 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure: 89 Table 27 Farm & Ranch 90-Day Delinquencies as of December 31, 2020 Distribution of Farm & Ranch Line of Business Farm & Ranch Line of Business 90-Day Delinquencies (1) Percentage (dollars in thousands) By year of origination: 2010 and prior 7 % $ 592,548 $ 2,591 0.44 % 2011 2 % 130,862 — — % 2012 4 % 326,344 — — % 2013 6 % 474,806 961 0.20 % 2014 4 % 373,001 1,077 0.29 % 2015 6 % 540,674 691 0.13 % 2016 10 % 875,272 11,326 1.29 % 2017 11 % 903,891 14,811 1.64 % 2018 9 % 828,905 2,317 0.28 % 2019 14 % 1,178,015 12,458 1.06 % 2020 27 % 2,356,863 — 1.06 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By geographic region (2) : Northwest 12 % $ 1,048,868 $ 11,690 1.11 % Southwest 35 % 2,981,880 1,616 0.05 % Mid-North 29 % 2,483,698 15,056 0.61 % Mid-South 12 % 1,059,152 3,043 0.29 % Northeast 4 % 368,156 4,396 1.19 % Southeast 8 % 639,427 10,431 1.63 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By commodity/collateral type: Crops 50 % $ 4,344,410 $ 27,589 0.64 % Permanent plantings 24 % 2,041,054 1,462 0.07 % Livestock 18 % 1,536,808 8,927 0.58 % Part-time farm 6 % 506,140 754 0.15 % Ag. Storage and Processing 2 % 148,091 7,500 5.06 % Other — 4,678 — — % Total 100 % $ 8,581,181 $ 46,232 0.54 % By original loan-to-value ratio: 0.00% to 40.00% 17 % $ 1,466,011 $ 3,803 0.26 % 40.01% to 50.00% 25 % 2,104,552 16,615 0.79 % 50.01% to 60.00% 35 % 2,998,033 22,874 0.76 % 60.01% to 70.00% 20 % 1,695,216 2,608 0.15 % 70.01% to 80.00% (3) 3 % 301,886 222 0.07 % 80.01% to 90.00% (3) — % 15,483 110 0.71 % Total 100 % $ 8,581,181 $ 46,232 0.54 % By size of borrower exposure (4) : Less than $1,000,000 29 % $ 2,475,210 $ 6,456 0.26 % $1,000,000 to $4,999,999 35 % 2,980,950 22,026 0.74 % $5,000,000 to $9,999,999 15 % 1,297,834 7,500 0.58 % $10,000,000 to $24,999,999 12 % 1,019,996 10,250 1.00 % $25,000,000 and greater 9 % 807,191 — — % Total 100 % $ 8,581,181 $ 46,232 0.54 % (1) Includes loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (2) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). (3) Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance. (4) Includes aggregated loans to single borrowers or borrower-related entities. 90 Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio. Assets categorized as "substandard" have a well-defined weakness or weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of December 31, 2020, Farmer Mac's substandard assets were $291.5 million (3.4% of the Farm & Ranch portfolio), compared to $310.0 million (4.0% of the Farm & Ranch portfolio) as of December 31, 2019. Those substandard assets were comprised of 343 loans as of December 31, 2020 and 353 loans as of December 31, 2019. The decrease of $18.5 million in substandard assets during 2020 was primarily driven by credit upgrades in our on-balance sheet portfolio, partially offset by credit downgrades in our off-balance sheet portfolio during the year. Substandard assets decreased as a percentage of the total on-balance sheet portfolio primarily due to the credit upgrades in our on-balance sheet portfolio. Substandard assets increased as a percentage of the total off-balance sheet portfolio primarily due to the credit downgrades in our off-balance sheet portfolio. The percentage of substandard assets within the portfolio closely approximates the historical average. Farmer Mac's average substandard assets as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 4%. Due to the COVID-19 pandemic, we believe that the substandard rate could rise above that historical average in the short-term. However, the recent improvements in the agricultural economy could potentially counter the negative effects of COVID-19 on our loan portfolio. The full extent of the impact of the COVID-19 pandemic remains to be seen, and we will continue to monitor its impact on our substandard asset rate. The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds. If Farmer Mac's substandard asset rate increases from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase. Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its portfolio, which Farmer Mac believes is adequately collateralized. The following table presents the current loan-to-value ratios for the Farm & Ranch portfolio, as disaggregated by internally assigned risk ratings: Table 28 Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of December 31, 2020 Acceptable Special Mention Substandard Total (in thousands) Current loan-to-value ratio (1) : 0.00% to 40.00% $ 2,569,762 $ 81,890 $ 91,930 $ 2,743,582 40.01% to 50.00% 2,161,539 90,165 72,847 2,324,551 50.01% to 60.00% 1,994,724 58,366 81,283 2,134,373 60.01% to 70.00% 1,010,825 60,555 18,988 1,090,368 70.01% to 80.00% 235,587 18,343 18,675 272,605 80.01% and greater 5,920 2,011 7,771 15,702 Total $ 7,978,357 $ 311,330 $ 291,494 $ 8,581,181 (1) The current loan-to-value ratio is based on original appraised value (or most recently obtained appraisal, if available) and current outstanding loan amount adjusted to reflect loan amortization. 91 The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of December 31, 2020 by year of origination, geographic region, and commodity/collateral type. The purpose of this information is to present information about realized losses relative to original Farm & Ranch purchases, guarantees, and commitments. Table 29 Farm & Ranch Credit Losses Relative to Cumulative Original Loans, Guarantees, and LTSPCs as of December 31, 2020 Cumulative Original Loans, Guarantees and LTSPCs Cumulative Net Credit Losses/(Recoveries) Cumulative Loss Rate (dollars in thousands) By year of origination: 2010 and prior $ 15,323,945 $ 30,124 0.20 % 2011 780,955 3,661 0.47 % 2012 1,157,760 — — % 2013 1,460,375 — — % 2014 1,032,953 — — % 2015 1,197,566 (516) (0.04) % 2016 1,488,794 — — % 2017 1,578,674 5,365 0.34 % 2018 1,291,175 — — % 2019 1,488,791 — — % 2020 2,590,540 — % Total $ 29,391,528 $ 38,634 0.13 % By geographic region (1) : Northwest $ 3,816,339 $ 11,191 0.29 % Southwest 10,415,885 8,542 0.08 % Mid-North 7,414,805 18,219 0.25 % Mid-South 3,632,060 (613) (0.02) % Northeast 1,611,170 323 0.02 % Southeast 2,501,269 972 0.04 % Total $ 29,391,528 $ 38,634 0.13 % By commodity/collateral type: Crops $ 13,582,696 $ 2,887 0.02 % Permanent plantings 6,535,361 9,783 0.15 % Livestock 6,555,620 3,836 0.06 % Part-time farm 1,707,662 1,090 0.06 % Ag. Storage and Processing 857,324 21,038 2.45 % Other 152,865 — — % Total $ 29,391,528 $ 38,634 0.13 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 92 Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer Mac's exposure to loss on a given loan. The following tables present concentrations of Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities by commodity type within geographic region and cumulative credit losses by origination year and commodity type: Table 30 As of December 31, 2020 Farm & Ranch Concentrations by Commodity Type within Geographic Region Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Other Total (dollars in thousands) By geographic region (1) : Northwest $ 505,381 $ 196,530 $ 257,345 $ 84,553 $ 5,000 $ 59 $ 1,048,868 5.8 % 2.3 % 3.0 % 1.0 % 0.1 % — % 12.2 % Southwest 708,740 1,549,973 537,006 96,863 86,919 2,379 2,981,880 8.2 % 18.1 % 6.3 % 1.1 % 1.0 % — % 34.7 % Mid-North 2,102,120 10,955 222,812 117,914 27,963 1,934 2,483,698 24.4 % 0.1 % 2.6 % 1.4 % 0.4 % — % 28.9 % Mid-South 628,515 43,568 312,432 67,897 6,721 19 1,059,152 7.3 % 0.5 % 3.7 % 0.8 % 0.1 % — % 12.4 % Northeast 161,833 58,401 78,494 65,996 3,432 — 368,156 1.9 % 0.7 % 0.9 % 0.8 % — % — % 4.3 % Southeast 237,821 181,627 128,719 72,917 18,056 287 639,427 2.8 % 2.1 % 1.5 % 0.9 % 0.2 % — % 7.5 % Total $ 4,344,410 $ 2,041,054 $ 1,536,808 $ 506,140 $ 148,091 $ 4,678 $ 8,581,181 50.4 % 23.8 % 18.0 % 6.0 % 1.8 % — % 100.0 % (1) Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). 93 Table 31 As of December 31, 2020 Farm & Ranch Cumulative Credit Losses by Origination Year and Commodity Type Crops Permanent Plantings Livestock Part-time Farm Ag. Storage and Processing Total (in thousands) By year of origination: 2010 and prior $ 3,427 $ 9,783 $ 3,836 $ 1,066 $ 12,012 $ 30,124 2011 — — — — 3,661 3,661 2012 — — — — — — 2013 — — — — — — 2014 — — — — — — 2015 (540) — — 24 — (516) 2016 — — — — — — 2017 — — — — 5,365 5,365 2018 — — — — — — 2019 — — — — — — 2020 — — — — — — Total $ 2,887 $ 9,783 $ 3,836 $ 1,090 $ 21,038 $ 38,634 Rural Utilities Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of December 31, 2020 was $2.8 billion across 45 states. For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting". As of December 31, 2020, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans. Farmer Mac has indirect credit exposure to Rural Utilities loans that secure AgVantage securities included in the Institutional Credit line of business. As of December 31, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities. Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of the current expected credit loss accounting standard ("CECL") on January 1, 2020, we are now required to forecast and disclose our expected credit losses for the expected life of our Rural Utilities portfolio assets. To do this, Farmer Mac relies upon industry data purchased from ratings agencies as well as publicly available information as disclosed in the securities filings of other major lenders who serve this industry. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses." Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk characteristics. These characteristics can include (but is not limited to) financial metrics, internal risk ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the regulatory environment. 94 The following table presents Farmer Mac’s portfolio of generation and transmission ("G&T") and distribution cooperative borrowers, as well as renewable energy loans, disaggregated by internally assigned risk ratings. Table 32 Rural Utilities portfolio by internally assigned risk rating as of December 31, 2020 Acceptable Special Mention Substandard Total (in thousands) Distribution Cooperative $ 2,128,985 $ — $ — $ 2,128,985 G&T Cooperative 614,817 — — 614,817 Renewable Energy 73,035 — — 73,035 Rural Utilities Total $ 2,816,837 $ — $ — $ 2,816,837 For more information about the credit quality of Farmer Mac's Rural Utilities portfolio and the associated allowance for losses please refer to Notes 8 and 12 of the consolidated financial statements. Other Considerations Regarding Credit Risk Related to Loans and Guarantees The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA Securities, is guaranteed by the full faith and credit of the United States. Therefore, Farmer Mac believes that we have little or no credit risk exposure in the USDA Guarantees line of business because of the USDA guarantee. As of December 31, 2020, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future. Because we do not expect credit losses on this portfolio, Farmer Mac does not provide an allowance for losses on its portfolio of USDA Guaranteed Securities. As of December 31, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $92.9 million underlying USDA Securities. Farmer Mac requires most approved lenders to make representations and warranties about the conformity of eligible agricultural mortgage and Rural Utilities loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans. Sellers who make these representations and warranties are responsible to Farmer Mac for breaches of those representations and warranties. Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the previous three years ended December 31, 2020, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan. In addition to relying on the representations and warranties of sellers, Farmer Mac also underwrites the agricultural real estate mortgage loans (other than rural housing and part-time farm mortgage loans) and Rural Utilities loans on which it has direct credit exposure. For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria without exception. For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting and Collateral Standards." 95 Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements. Servicers are responsible to Farmer Mac for serious errors in the servicing of those loans. If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer. Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law. During the previous three years ended December 31, 2020, Farmer Mac had not exercised any remedies or taken any formal action against any servicers. For more information about Farmer Mac's servicing requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Servicing" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Servicing." Credit Risk – Institutional . Farmer Mac is exposed to credit risk arising from its business relationships with other institutions, which include: • issuers of AgVantage securities; • approved lenders and servicers; and • interest rate swap counterparties. Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the particular counterparty type and transaction. The required collateralization level is established when the AgVantage facility is entered into with the counterparty and does not change during the life of the AgVantage securities issued under the facility without Farmer Mac's consent. In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral any loan that becomes more than 30 days delinquent in the payment of principal or interest and to substitute an eligible loan that is current in payment to maintain the minimum required collateralization level. Since the onset of the COVID-19 pandemic, Farmer Mac has approved and expects to continue to approve payment deferments on loans collateralizing AgVantage securities, allowing the AgVantage counterparty to keep these loans in its collateral pool without replacing them. The criteria currently in place for approving payment deferments for these loans is similar to the criteria Farmer Mac has established for loans in its Farm & Ranch portfolio that are affected by the COVID-19 pandemic. In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest. For Farm Equity AgVantage counterparties and smaller financial funds or entities, Farmer Mac also requires that the counterparty generally (1) maintain a higher collateralization level either through a higher overcollateralization percentage or through lower loan-to-value ratio thresholds and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default. For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Institutional Credit." The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.2 billion as of December 31, 2020 and $5.5 billion as of December 31, 2019. The unpaid principal balance of on-balance sheet AgVantage securities secured by loans eligible for the Rural Utilities line of business totaled $2.6 billion as of December 31, 96 2020 and $2.9 billion as of December 31, 2019. The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $4.4 million as of December 31, 2020 and $7.6 million as of December 31, 2019. A $0.3 billion off-balance sheet AgVantage revolving line of credit facility was terminated during fourth quarter 2019. The following table provides information about the issuers of AgVantage securities, as well as the required collateralization levels for those transactions as of December 31, 2020 and December 31, 2019: Table 33 As of December 31, 2020 As of December 31, 2019 Counterparty Balance Credit Rating Required Collateralization Balance Credit Rating Required Collateralization (dollars in thousands) AgVantage: CFC $ 2,570,249 A 100% $ 2,949,500 A 100% MetLife 2,375,000 AA- 103% 2,550,000 AA- 103% Rabo AgriFinance 2,050,000 None 110% 2,225,000 None 110% Other (1) 551,654 None 106% to 125% 436,041 None 106% to 125% Farm Equity AgVantage (2) 192,456 None 110% 279,705 None 110% Total outstanding $ 7,739,359 $ 8,440,246 (1) Consists of AgVantage securities issued by 6 and 5 different issuers as of December 31, 2020 and December 31, 2019, respectively. (2) Consists of AgVantage securities issued by 4 and 5 different issuers as of December 31, 2020 and December 31, 2019, respectively. Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those institutions to meet Farmer Mac's standards for creditworthiness. Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and bank credit rating agency reports. For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Lenders" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Lenders." Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that vary based on the market value of its swap portfolio with each counterparty. Farmer Mac and its interest rate swap counterparties are required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017. Farmer Mac transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure concentration. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and Note 6 to the consolidated financial statements. Credit Risk – Other Investments . As of December 31, 2020, Farmer Mac had $1.0 billion of cash and cash equivalents and $3.9 billion of investment securities. The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as the Liquidity and Investment Regulations for Farmer Mac, which were issued by FCA and which establish criteria for investments that are eligible for Farmer Mac's investment portfolio, including limitations on asset class, dollar amount, issuer concentration, and credit quality. In addition to establishing a portfolio of highly liquid investments 97 as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets. Farmer Mac's Liquidity and Investment Regulations and internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards: (1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default; (2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held. Farmer Mac's Liquidity and Investment Regulations and internal policies also establish concentration limits, which are intended to limit exposure to any single entity, issuer, or obligor. Farmer Mac's Liquidity and Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($102.4 million as of December 31, 2020). However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($51.2 million as of December 31, 2020). These exposure limits do not apply to obligations of U.S. government agencies or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in the senior non-convertible debt securities of any one GSE. Although the Liquidity and Investments Regulations do not establish limits on the maximum amount, expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk management framework. Interest Rate Risk . Farmer Mac is subject to interest rate risk on all financial assets retained on its balance sheet because of timing differences in the cash flows due to maturity, paydown, or repricing of the assets and debt together with financial derivatives. This risk is primarily related to loans, loan participation interests, Farmer Mac Guaranteed Securities, USDA Securities, and certain investment securities due to the contractual right of borrowers to prepay their loans before the scheduled maturities. Cash flow mismatches due to changing interest rates can reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly reduced. Alternatively, Farmer Mac could see a drop in income if assets repay more slowly than expected in a rising interest rate environment and the associated debt must be replaced by higher-cost debt. Interest Rate Risk Management The goal of interest rate risk management at Farmer Mac is to manage the balance sheet in a manner that generates stable earnings and value across a variety of interest rate environments. Recognizing that interest rate sensitivity may change with the passage of time and as interest rates change, Farmer Mac regularly assesses this exposure and, if necessary, adjusts its portfolio of funded financial assets, liabilities, and financial derivatives. Farmer Mac's objective is to maintain its exposure to interest rate risk within appropriate limits, as approved by Farmer Mac's board of directors. Farmer Mac's management-level Asset and Liability 98 Committee ("ALCO") provides oversight and approves strategies to maintain interest rate risk within the board-established limits. Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with debt that together with financial derivatives have similar duration and convexity characteristics and help to mitigate impacts from interest rates changes across the yield curve. As part of this debt issuance strategy, Farmer Mac seeks to issue a blend of liabilities and enter into financial derivative transactions across a variety of maturities to approximately align the liability cash flows with the forecasted asset cash flows. Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its debt issuance strategy. Callable debt is issued to mitigate prepayment risk associated with certain funded financial assets held on balance sheet. In general, as interest rates decline, prepayments typically increase, and Farmer Mac is able to extinguish certain callable debt issuances. Therefore, these callable liabilities are reduced around the same time and amount of the asset prepayments. The interest rate sensitivities of the debt together with financial derivatives tend to increase or decrease as interest rates change in a manner that fully or partially offset similar changes in the interest rate sensitivities of the funded financial assets. In addition, Farmer Mac enters into financial derivatives, primarily interest rate swaps, to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall sensitivity to changing interest rates. Taking into consideration the prepayment provisions and the default probabilities associated with its portfolio of retained assets, Farmer Mac incorporates behavioral prepayment models when projecting and valuing cash flows associated with these assets. Because borrowers' behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of future prepayment forecasts. Changes in interest rates may affect asset prepayment rates which may, in turn, impact durations and values of the assets. Declining interest rates generally increase prepayment rates, which shortens the duration of these assets, while rising interest rates tend to loan prepayments, thereby extending the duration of the assets. Farmer Mac is subject to interest rate risk on loans and securities that Farmer Mac has committed to acquire but has not yet purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization under a forward purchase agreement). When Farmer Mac commits to purchase these assets, it is exposed to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund the purchase of those loans. Farmer Mac manages the interest rate risk related to these loans by using futures contracts involving U.S. Treasury securities and other financial derivatives. Farmer Mac enters into U.S. Treasury futures contracts as a hedge against the level of interest rates. Farmer Mac's $1.0 billion of cash and cash equivalents mature within three months and are generally funded with debt having similar maturities. As of December 31, 2020, $3.6 billion of the $3.9 billion of investment securities (93%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year. The floating rate securities are funded with effectively floating rate debt that closely matches the rate adjustment frequency of the associated investments. The fixed rate investment securities are generally funded in a manner consistent with Farmer Mac's overall funding strategy that approximates a duration and convexity match. 99 Interest Rate Risk Metrics Farmer Mac regularly stress tests and runs simulations on its portfolio of financial assets and liabilities for interest rate risk and examines a variety of metrics to quantify and manage its interest rate risk. These metrics include sensitivity to interest rate movements of market value of equity ("MVE") and projected net effective spread ("NES") as well as duration gap analysis. MVE represents management's estimate of the present value of all future cash flows from on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads. However, MVE is not indicative of the market value of Farmer Mac as a going concern because these market values are theoretical and do not reflect future business activities. The MVE sensitivity analysis measures the degree to which the market values of Farmer Mac's assets, liabilities, and financial derivatives are estimated to change for a given change in interest rates. Because this analysis evaluates the effect of interest rate movements on the value of all future cash flows, this measure provides an evaluation of Farmer Mac's long-term interest rate risk. Farmer Mac's NES simulation represents the difference between projected income over the next twelve months from the current portfolio of interest-earning assets and interest expense produced by the related funding, including associated financial derivatives. Farmer Mac's NES may be impacted by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of assets and liabilities together with the associated financial derivatives. The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates across the yield curve as well as the composition of Farmer Mac's portfolio. The NES simulation represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to produce over a twelve-month horizon. As a result, the NES simulation sensitivity statistics provide a short-term view of Farmer Mac's sensitivity to interest rate shocks. Duration is a measure of a financial instrument's fair value sensitivity to small changes in interest rates. Duration gap is the net estimated durations of Farmer Mac's funded assets, debt, and financial derivatives. Because duration is a measure of fair value sensitivity, duration gap quantifies the extent to which estimated fair value sensitivities for assets and liabilities are matched. Duration gap provides a relatively concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio. A positive duration gap denotes that the duration of Farmer Mac's funded assets is greater than the duration of its debt and financial derivatives. A positive duration gap indicates that fair value changes of Farmer Mac's funded assets is more sensitive to small interest rate movements than fair value changes of its debt and financial derivatives. Conversely, a negative duration gap indicates that fair value changes of Farmer Mac's funded assets are less sensitive to small interest rate movements than fair value changes of its debt and financial derivatives. A duration gap of zero indicates that with small changes in interest rate movements the fair value change of Farmer Mac's assets is effectively offset by the fair value change of its debt and financial derivatives. Each of the interest rate metrics is produced using asset/liability models and is derived based on management's best estimates of factors such as forward interest rates across the yield curve, interest rate volatility, and asset prepayment speeds. Accordingly, these metrics are estimates rather than precise measurements. Actual results may differ to the extent there are material changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken to mitigate unfavorable sensitivities to interest rate changes. 100 The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of December 31, 2020 and December 31, 2019 to an immediate and instantaneous uniform or "parallel" shift in the yield curve: Table 34 Percentage Change in MVE from Base Case Interest Rate Scenario (1) As of December 31, 2020 (1) As of December 31, 2019 +100 basis points 4.9 % 2.7 % -100 basis points (0.2) % (8.4) % Percentage Change in NES from Base Case Interest Rate Scenario (2) As of December 31, 2020 (1) As of December 31, 2019 (2) +100 basis points 3.9 % 0.5 % -100 basis points — % 1.0 % (1) The down 100 basis points shock scenario was replaced in 2020 with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the approval of the Financial Risk Committee of the Board of Directors. The replacement down shock scenario was negative 4 basis points as of December 31, 2020. (2) The NES shock scenario of +100 and -100 basis points as of December 31, 2019 were updated (from 0.8% and 0.1%, respectively) to conform the underlying NES components of the shock scenario with the reported NES. As of December 31, 2020, Farmer Mac's effective duration gap was negative 1.6 months, compared to negative 1.2 months as of December 31, 2019. In 2020, Farmer Mac updated its duration gap measure to funded assets, debt, and financial derivatives; the previously reported duration gap as of December 31, 2019 was negative 2.5 months. Interest rates decreased significantly during 2020 with the 2-year and 10-year US Treasury Note yield-to-maturity dropping by approximately 145 basis points and 100 basis points, respectively, versus year-end 2019. This rate movement contributed to reducing the duration of Farmer Mac's funded assets compared to its liabilities and financial derivatives, thereby widening Farmer Mac's duration gap. Furthermore, as of December 31, 2020, Farmer Mac implemented a replacement behavioral prepayment model that also contributed to a widening duration gap. Financial Derivatives Transactions The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses. Farmer Mac enters into the following types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of funded assets, future cash flows, and debt issuance, and not for trading or speculative purposes: • "pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives floating rates of interest from, counterparties; • "receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties; and • "basis swaps," in which Farmer Mac pays variable rates of interest based on one index to, and receives variable rates of interest based on another index from, counterparties. As of December 31, 2020, Farmer Mac had $15.4 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.3 billion were pay-fixed interest rate swaps, $5.5 billion were receive-fixed interest rate swaps, and $3.6 billion were basis swaps. Farmer Mac enters into interest rate swap contracts to more closely match the cash flow and duration characteristics of its financial assets with those of its liabilities. For example, Farmer Mac transacts pay- 101 fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that approximately matches duration with the corresponding assets being funded. Farmer Mac evaluates the overall cost of using the swap market in conjunction with debt issuance as a funding alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet. Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark interest rate (e.g., LIBOR and SOFR). Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. As discussed in Note 6 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of undesignated financial derivatives are reported in "(Losses)/gains on financial derivatives" in the consolidated statements of operations. For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the consolidated statements of operations. For financial derivatives designated in cash flow hedge accounting relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income. Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on variable rate debt, amounts recorded in accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt. All of Farmer Mac's financial derivatives transactions are conducted under standard collateralized agreements that limit Farmer Mac's potential credit exposure to any counterparty. As of December 31, 2020 and December 31, 2019, Farmer Mac had no uncollateralized net exposures. Re-funding and repricing risk Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity. Re-funding and repricing risk arises from potential changes in funding costs when Farmer Mac funds floating rate, or synthetic floating rate, assets with floating rate liabilities with shorter maturities. Changes in Farmer Mac's funding costs relative to the benchmark market index rate to which the assets are indexed can cause changes to net interest income when debt matures and is reissued to continue funding those assets. In addition, many of Farmer Mac's floating rate assets may prepay before the contractual maturity date. Farmer Mac is also subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate. These fixed rate assets are then effectively synthetically floating rate assets that require floating rate funding. Farmer Mac can meet floating rate funding needs in several ways, including: • issuing short-term discount notes with maturities that match the reset period of the assets; • issuing floating rate medium-term notes with maturities and reset frequencies that match the assets being funded; 102 • issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded; or • issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating rate to match the interest rate reset dates of the assets as an alternative source of effectively floating rate funding. To meet floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with a received-fixed interest rate swap because these alternatives generally provide a lower cost of funding while generating an effective interest rate match. As funding for these floating rate assets matures, Farmer Mac seeks to refinance the debt associated with these assets in a similar fashion to achieve an appropriate interest rate match in the context of Farmer Mac's overall liability issuance and liquidity management strategies. However, if the funding cost of Farmer Mac’s discount notes or medium-term notes were to increase relative to the benchmark market index to which the assets are being funded during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction in its net effective spread on the associated assets. Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes were to decrease relative to LIBOR (or a different market index) during that time, Farmer Mac would benefit from a commensurate increase in its net effective spread on those assets. Farmer Mac's liability issuance strategy targets balancing liquidity risk and re-funding and repricing risk while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk tolerance. ALCO regularly reviews Farmer Mac's liability issuance strategy to appropriately manage re-funding and repricing risk. As of December 31, 2020, Farmer Mac held $6.4 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indexes, primarily one-month and three-month LIBOR. As of the same date, Farmer Mac also had $6.3 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest. Following a period of market volatility in the first half of 2020, Farmer Mac's funding relative to LIBOR stabilized with spreads modestly higher compared to historical averages. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of spread variability and seeks to maintain an effective funding cost in the context of its overall liability management and liquidity management strategies. Discontinuation of LIBOR As described in "Risk Factors—Market Risk", Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate. We are currently evaluating the potential effect on our business of the replacement of the LIBOR benchmark interest rate. As of December 31, 2020, Farmer Mac held $5.1 billion of floating rate assets in its lines of business and its investment portfolio, had issued $4.7 billion of floating rate debt, and had entered into $14.6 billion notional amount of interest rate swaps, each of which reset based on LIBOR. In addition, our Non-Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024. It becomes 103 redeemable at our option on July 18, 2024 and thereafter pays interest at a floating rate equal to three-month LIBOR plus 3.260%. The market transition away from LIBOR and towards an alternative benchmark interest rate indices that may be developed is expected to be complicated and may require the development of term and credit adjustments to accommodate for differences between the benchmark interest rate indices. The transition may also result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions. As of December 31, 2020, we had $1.0 billion outstanding in medium-term notes based on the Secured Overnight Financing Rate (SOFR), a potential alternative benchmark interest rate. Liquidity and Capital Resources Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities. Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable rates throughout 2020 and 2019. Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt obligations of various maturities in the public capital markets. As of December 31, 2020, Farmer Mac had outstanding discount notes of $1.8 billion, medium-term notes that mature within one year of $8.9 billion, and medium-term notes that mature after one year of $11.0 billion. Assuming continued access to the capital markets, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future. Farmer Mac also has a contingency funding plan to manage unanticipated disruptions in its access to the capital markets. That plan involves borrowing through repurchase agreement arrangements and the sale of liquid assets. Farmer Mac must maintain a minimum of 90 days of liquidity under the Liquidity and Investment Regulations prescribed for Farmer Mac by FCA. In accordance with the methodology for calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average of 196 days of liquidity during 2020 and had 207 days of liquidity as of December 31, 2020. ALCO regularly reviews Farmer Mac's liquidity position and ensures the required minimums are maintained. Farmer Mac maintains cash, cash equivalents (including U.S. Treasury securities and other short-term money market instruments), and other investment securities that can be drawn upon for liquidity needs. Farmer Mac's current policies authorize liquidity investments in: • obligations of or fully guaranteed by the United States or a U.S. government agency; • obligations of or fully guaranteed by GSEs; • municipal securities; • international and multilateral development bank obligations; • money market instruments; • diversified investment funds; • asset-backed securities; • corporate debt securities; and • mortgage-backed securities. 104 The following table presents these assets as of December 31, 2020 and December 31, 2019: Table 35 As of December 31, 2020 As of December 31, 2019 (in thousands) Cash and cash equivalents $ 1,033,941 $ 604,381 Investment securities: Guaranteed by U.S. Government and its agencies 1,935,056 1,842,640 Guaranteed by GSEs 1,944,497 1,143,323 Asset-backed securities 19,171 18,912 Total $ 4,932,665 $ 3,609,256 The increase in the investment portfolio since December 31, 2019 was to provide a greater level of liquidity in response to market disruptions driven by the COVID-19 pandemic, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth as the overall funding needs for the balance sheet increased. Capital Requirements . Farmer Mac is subject to the following statutory capital requirements – minimum, critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of December 31, 2020, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level 1" (the highest compliance level). In accordance with FCA's rule on capital planning, Farmer Mac's board of directors has adopted a policy for maintaining a sufficient level of "Tier 1" capital (consisting of retained earnings, paid-in capital, common stock, and qualifying preferred stock). That policy restricts Tier 1-eligible dividends and any discretionary bonus payments if Tier 1 capital falls below specified thresholds. As of December 31, 2020 and December 31, 2019, Farmer Mac's Tier 1 capital ratio was 14.1% and 12.9%, respectively. The increase in our Tier 1 capital ratio was due to the fact that capital growth, which reflects the issuance of the Series E and Series F Preferred Stock, partially offset by the redemption of the Series A Preferred Stock, outpaced the growth in risk-weighted assets during 2020. As of December 31, 2020, Farmer Mac was in compliance with its capital adequacy policy. Farmer Mac does not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition. For more information about the capital requirements applicable to Farmer Mac, its capital adequacy policy, and FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards." See Note 9 to the consolidated financial statements for more information about Farmer Mac's capital position. Discount and Medium-term Notes . The following table presents the amount and timing of Farmer Mac's known, fixed, and determinable discount and medium-term note obligations by payment date as of December 31, 2020. The payment amounts represent those amounts due to the investor (including return of discount and interest on debt) and do not include unamortized premiums or discounts or other similar carrying value adjustments. 105 Table 36 One Year or Less One to Three Years Three to Five Years Over Five Years Total (in thousands) Discount notes (1) $ 1,797,659 $ — $ — $ — $ 1,797,659 Medium-term notes (1) 8,949,870 5,816,659 2,271,750 2,972,372 20,010,651 Interest payments on fixed rate medium-term notes (2) 163,320 226,095 134,352 255,575 779,342 Interest payments on floating rate medium-term notes (3) 11,455 10,679 7,423 6,015 35,572 (1) Future events, including additional issuance of discount notes and medium-term notes and refinancing of those notes, could cause actual payments to differ significantly from these amounts. For more information regarding discount notes and medium-term notes, see Note 7 to the consolidated financial statements. (2) Interest payments on callable medium-term notes are calculated based on maturity. Future calls of these notes could cause actual interest payments to differ significantly from the amounts presented. (3) Calculated using the effective interest rates as of December 31, 2020. As a result, these amounts do not reflect the effects of changes in the interest rates effective on future interest rate reset dates. Farmer Mac enters into financial derivatives contracts under which it either receives cash from counterparties, or is required to pay cash to them, depending on changes in interest rates. Financial derivatives are carried on the consolidated balance sheets at fair value, representing the net present value of expected future cash payments or receipts based on market interest rates as of the balance sheet date adjusted for the consideration of credit risk of Farmer Mac and its counterparties. The fair values of the contracts change daily as market interest rates change. Because the financial derivative liabilities recorded on the consolidated balance sheet as of December 31, 2020 do not represent the amounts that may ultimately be paid under the financial derivative contracts, those liabilities are not included in the table presented above. More information about financial derivatives is included in Note 2(e) and Note 6 to the consolidated financial statements. Contingent Liabilities . In conducting its loan purchase activities, Farmer Mac enters into mandatory delivery commitments to purchase agricultural real estate mortgage loans and USDA Securities. In conducting its LTSPC activities, Farmer Mac commits, subject to the applicable LTSPC agreement, to a future purchase of one or more loans from identified pools of eligible loans that met Farmer Mac's standards when the applicable transaction was entered into and Farmer Mac assumed the credit risk on the loans. The following table presents these significant commitments: Table 37 As of December 31, 2020 2019 (in thousands) LTSPCs $ 2,881,856 $ 3,002,349 Mandatory commitments to purchase loans and USDA Securities 125,811 65,056 For more information about Farmer Mac's commitments to purchase loans, see Note 12 to the consolidated financial statements. Off-Balance Sheet Arrangements Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed Securities, which are available through each of the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business; and (2) LTSPCs, which are available through the Farm & Ranch and Rural Utilities lines of business. For securitization trusts where Farmer Mac is the primary beneficiary, 106 the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet. For securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation, both of these alternatives create off-balance sheet obligations for Farmer Mac. See Note 12 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities. As of December 31, 2020 and 2019, outstanding off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities totaled $3.3 billion and $3.5 billion, respectively. The following table presents the balance of outstanding LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2020 and 2019: Table 38 Outstanding Balance of LTSPCs and Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2020 2019 (in thousands) Farm & Ranch obligations: LTSPCs $ 2,325,431 $ 2,393,071 Farm & Ranch Guaranteed Securities 79,312 107,322 Total Farm & Ranch obligations 2,404,743 2,500,393 USDA Guarantees obligations: Farmer Mac Guaranteed USDA Securities 299,298 389,216 Rural Utilities obligations: LTSPCs 556,425 609,278 Institutional Credit obligations: AgVantage Securities 4,412 7,567 Total off-balance sheet $ 3,264,878 $ 3,506,454 See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees" and Notes 2(b), 2(d), 5 and 12 to the consolidated financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(l) and 12 to the consolidated financial statements for more information about LTSPCs. Regulatory Matters Section 4013 of the CARES Act that was signed into law on March 27, 2020 provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of the COVID-19 pandemic. On April 10, 2020, Farmer Mac’s prudential regulator, FCA (through OSMO) issued guidance to Farmer Mac to encourage Farmer Mac to work with its lending and servicing partners in approving servicing actions for borrowers impacted by COVID-19, including working with other Farm Credit System institutions on approvals for loans to which statutory borrower rights are attached (primarily in LTSPCs), as well as guidance on reporting TDRs for lines of business affected by the COVID-19 outbreak. The FCA's guidance on TDRs was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency. 107 In response to the COVID-19 pandemic and the related economic effects, Congress passed a series of stimulus measures (including the CARES Act) that delivered more than $35 billion in emergency aid to farmers and ranchers in 2020. In addition, through funding provided in the various COVID-19 stimulus packages, the USDA oversaw the purchase and delivery of $4.5 billion in food to food banks, churches, community organizations, schools, and tribal organizations through the Farmers to Families Food Box Program during 2020. These purchases have helped support commodity prices and serve millions of Americans in need. On December 27, 2020, President Trump signed into law a bill providing for, among other measures, $13 billion in additional support for U.S. agriculture through direct payments and food support funding that is scheduled to be disbursed in 2021. With the start of a new Congress and President Biden's Administration, Farmer Mac continues to monitor legislation and regulations that could affect Farmer Mac, farmers, ranchers, rural lenders, and rural America in general. Other Matters The expected effects of recently issued accounting pronouncements on the consolidated financial statements are presented in Note 2(p) to the consolidated financial statements. Supplemental Information The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume: Table 39 New Business Volume Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) For the quarter ended: December 31, 2020 $ 731,434 $ 141,332 $ 180,520 $ 189,729 $ — $ 96,424 $ 1,339,439 September 30, 2020 740,823 94,495 225,494 62,300 — 211,908 1,335,020 June 30, 2020 609,284 85,390 224,016 339,366 19,500 430,024 1,707,580 March 31, 2020 401,853 73,674 147,906 152,668 — 560,395 1,336,496 December 31, 2019 602,750 65,614 143,565 102,900 — 371,075 1,285,904 September 30, 2019 309,805 125,022 113,664 117,279 — 402,611 1,068,381 June 30, 2019 248,152 57,321 118,335 105,000 — 659,447 1,188,255 March 31, 2019 203,156 91,215 57,223 546,198 — 825,417 1,723,209 December 31, 2018 285,008 80,840 90,297 3,000 — 585,814 1,044,959 For the year ended: December 31, 2020 $ 2,483,394 $ 394,891 $ 777,936 $ 744,063 $ 19,500 $ 1,298,751 $ 5,718,535 December 31, 2019 1,363,863 339,172 432,787 871,377 — 2,258,550 5,265,749 108 Table 40 Repayments of Assets by Line of Business Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) For the quarter ended: Scheduled $ 175,613 $ 4,213 $ 26,895 $ 29,120 $ 37,062 $ 19,528 $ 676,567 $ 968,998 Unscheduled 231,342 2,242 95,264 99,811 1,610 — — 430,269 December 31, 2020 $ 406,955 $ 6,455 $ 122,159 $ 128,931 $ 38,672 $ 19,528 $ 676,567 $ 1,399,267 Scheduled $ 174,986 $ 2,524 $ 32,276 $ 29,654 $ 54,513 $ 14,100 $ 547,236 $ 855,289 Unscheduled 326,025 1,934 66,074 138,518 — — — 532,551 September 30, 2020 $ 501,011 $ 4,458 $ 98,350 $ 168,172 $ 54,513 $ 14,100 $ 547,236 $ 1,387,840 Scheduled $ 101,264 $ 3,043 $ 39,010 $ 37,879 $ 23,589 $ 25,132 $ 471,295 $ 701,212 Unscheduled 248,890 4,034 92,177 154,536 3,935 — — 503,572 June 30, 2020 $ 350,154 $ 7,077 $ 131,187 $ 192,415 $ 27,524 $ 25,132 $ 471,295 $ 1,204,784 Scheduled $ 128,768 $ 6,132 $ 50,393 $ 43,069 $ 34,235 $ 13,593 $ 304,540 $ 580,730 Unscheduled 191,260 3,888 60,442 78,806 — — — 334,396 March 31, 2020 $ 320,028 $ 10,020 $ 110,835 $ 121,875 $ 34,235 $ 13,593 $ 304,540 $ 915,126 Scheduled $ 57,488 $ 4,737 $ 39,878 $ 25,142 $ 10,317 $ 10,551 $ 656,095 $ 804,208 Unscheduled 105,671 3,247 74,121 66,011 34,063 — 13,000 296,113 December 31, 2019 $ 163,159 $ 7,984 $ 113,999 $ 91,153 $ 44,380 $ 10,551 $ 669,095 $ 1,100,321 Scheduled $ 97,421 $ 3,095 $ 22,713 $ 27,853 $ 31,656 $ 8,692 $ 441,575 $ 633,005 Unscheduled 129,676 2,663 76,883 39,442 — — 1,088 249,752 September 30, 2019 $ 227,097 $ 5,758 $ 99,596 $ 67,295 $ 31,656 $ 8,692 $ 442,663 $ 882,757 Scheduled $ 39,879 $ 3,758 $ 58,779 $ 38,676 $ 6,951 $ 17,092 $ 612,964 $ 778,099 Unscheduled 64,912 3,399 58,979 43,044 — — — 170,334 June 30, 2019 $ 104,791 $ 7,157 $ 117,758 $ 81,720 $ 6,951 $ 17,092 $ 612,964 $ 948,433 Scheduled $ 112,973 $ 5,843 $ 74,054 $ 41,266 $ 31,492 $ 7,660 $ 470,812 $ 744,100 Unscheduled 67,608 1,798 50,482 46,798 24,448 — 5,587 196,721 March 31, 2019 $ 180,581 $ 7,641 $ 124,536 $ 88,064 $ 55,940 $ 7,660 $ 476,399 $ 940,821 Scheduled $ 36,006 $ 8,331 $ 35,682 $ 24,793 $ 6,321 $ 16,062 $ 568,277 $ 695,472 Unscheduled 56,299 9,257 33,319 21,135 20,538 — — 140,548 December 31, 2018 $ 92,305 $ 17,588 $ 69,001 $ 45,928 $ 26,859 $ 16,062 $ 568,277 $ 836,020 For the year ended: Scheduled $ 580,631 $ 15,912 $ 148,574 $ 139,722 $ 149,399 $ 72,353 $ 1,999,638 $ 3,106,229 Unscheduled 997,517 12,098 313,957 471,671 5,545 — — 1,800,788 December 31, 2020 $ 1,578,148 $ 28,010 $ 462,531 $ 611,393 $ 154,944 $ 72,353 $ 1,999,638 $ 4,907,017 Scheduled $ 307,761 $ 17,433 $ 195,424 $ 132,937 $ 80,416 $ 43,995 $ 2,181,446 $ 2,959,412 Unscheduled 367,867 11,107 260,465 195,295 58,511 — 19,675 912,920 December 31, 2019 $ 675,628 $ 28,540 $ 455,889 $ 328,232 $ 138,927 $ 43,995 $ 2,201,121 $ 3,872,332 109 Table 41 Lines of Business - Outstanding Business Volume Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total (in thousands) As of: December 31, 2020 $ 6,176,438 $ 79,312 $ 2,325,431 $ 2,786,718 $ 2,260,412 $ 556,425 $ 7,739,359 $ 21,924,095 September 30, 2020 5,857,324 85,767 2,306,258 2,735,129 2,109,355 575,953 8,319,502 21,989,288 June 30, 2020 5,617,512 90,225 2,310,113 2,677,807 2,101,568 590,053 8,654,830 22,042,108 March 31, 2020 5,358,382 97,302 2,355,910 2,646,206 1,789,726 595,685 8,696,101 21,539,312 December 31, 2019 5,276,557 107,322 2,393,071 2,620,175 1,671,293 609,278 8,440,246 21,117,942 September 30, 2019 4,836,966 115,306 2,441,456 2,567,763 1,612,773 619,829 8,738,266 20,932,359 June 30, 2019 4,754,258 121,064 2,416,030 2,521,394 1,527,150 628,521 8,778,318 20,746,735 March 31, 2019 4,610,897 128,221 2,476,467 2,484,779 1,429,101 645,613 8,731,835 20,506,913 December 31, 2018 4,588,322 135,862 2,509,787 2,515,620 938,843 653,273 8,382,817 19,724,524 Table 42 On-Balance Sheet Outstanding Business Volume Fixed Rate 5- to 10-Year ARMs & Resets 1-Month to 3-Year ARMs Total Held in Portfolio (in thousands) As of: December 31, 2020 $ 11,330,414 $ 2,816,840 $ 4,511,964 $ 18,659,218 September 30, 2020 10,879,372 2,811,547 5,013,640 18,704,559 June 30, 2020 10,793,629 2,845,266 5,076,445 18,715,340 March 31, 2020 10,296,598 2,818,869 4,996,478 18,111,945 December 31, 2019 10,045,712 2,863,199 4,702,577 17,611,488 September 30, 2019 9,642,802 2,850,000 4,549,689 17,042,491 June 30, 2019 9,446,117 2,825,151 4,601,917 16,873,185 March 31, 2019 9,206,082 2,720,639 4,643,506 16,570,227 December 31, 2018 8,325,347 2,717,505 4,705,169 15,748,021 110 The following table presents the quarterly net effective spread (a non-GAAP measure) by segment: Table 43 Net Effective Spread by Line of Business Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield (dollars in thousands) For the quarter ended: December 31, 2020 (1) $ 20,313 1.75 % $ 6,786 1.10 % $ 7,322 1.35 % $ 17,401 0.85 % $ 2,700 0.22 % $ 54,522 0.98 % September 30, 2020 18,025 1.67 % 5,865 0.97 % 6,939 1.32 % 18,601 0.87 % 2,372 0.23 % 51,802 0.96 % June 30, 2020 16,733 1.71 % 4,689 0.81 % 5,516 1.15 % 18,782 0.86 % 749 0.08 % 46,469 0.89 % March 31, 2020 14,938 1.64 % 4,625 0.81 % 4,920 1.14 % 17,702 0.84 % 1,978 0.21 % 44,163 0.89 % December 31, 2019 (1) 16,374 1.90 % 4,363 0.78 % 4,871 1.17 % 18,008 0.85 % 2,375 0.27 % 45,991 0.95 % September 30, 2019 13,181 1.66 % 4,314 0.79 % 4,502 1.16 % 17,807 0.84 % 2,657 0.30 % 42,461 0.90 % June 30, 2019 13,335 1.72 % 4,097 0.76 % 3,996 1.10 % 17,371 0.82 % 2,556 0.34 % 41,355 0.91 % March 31, 2019 12,737 1.70 % 3,964 0.74 % 3,233 1.12 % 16,373 0.79 % 2,494 0.35 % 38,801 0.89 % December 31, 2018 13,288 1.79 % 4,630 0.85 % 2,833 1.19 % 15,751 0.80 % 2,353 0.36 % 38,855 0.93 % (1) See Note 14 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the years ended December 31, 2020 and 2019. 111 The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders: Table 44 Core Earnings by Quarter End December 2020 September 2020 June 2020 March 2020 December 2019 September 2019 June 2019 March 2019 December 2018 (in thousands) Revenues: Net effective spread $ 54,522 $ 51,802 $ 46,469 $ 44,163 $ 45,991 $ 42,461 $ 41,355 $ 38,801 $ 38,855 Guarantee and commitment fees 4,652 4,659 4,943 4,896 5,432 5,208 5,276 5,419 5,309 Other 512 453 1,048 674 100 389 777 509 (129) Total revenues 59,686 56,914 52,460 49,733 51,523 48,058 47,408 44,729 44,035 Credit related expense/(income): Provision for/(release of) losses 2,973 1,200 51 3,831 2,851 623 420 (393) 166 REO operating expenses — — — — — — 64 — — Losses/(gains) on sale of REO 22 — — (485) — — — — — Total credit related expense/(income) 2,995 1,200 51 3,346 2,851 623 484 (393) 166 Operating expenses: Compensation and employee benefits 9,497 8,791 8,087 10,127 6,732 7,654 6,770 7,606 7,167 General and administrative 6,274 5,044 5,295 5,363 5,773 5,253 4,689 4,596 5,829 Regulatory fees 750 725 725 725 725 688 687 688 687 Total operating expenses 16,521 14,560 14,107 16,215 13,230 13,595 12,146 12,890 13,683 Net earnings 40,170 41,154 38,302 30,172 35,442 33,840 34,778 32,232 30,186 Income tax expense 8,470 8,297 8,016 6,598 7,526 7,018 7,351 6,715 6,431 Preferred stock dividends 5,269 5,166 3,939 3,431 3,432 3,427 3,785 3,296 3,296 Core earnings $ 26,431 $ 27,691 $ 26,347 $ 20,143 $ 24,484 $ 23,395 $ 23,642 $ 22,221 $ 20,459 Reconciling items: (Losses)/gains on undesignated financial derivatives due to fair value changes (1,758) (4,149) 8,700 (6,484) 4,469 (7,117) 10,485 2,240 (96) Gains/(losses) on hedging activities due to fair value changes 3,827 (5,245) (2,676) (5,925) (220) (4,535) (1,438) (2,817) (853) Unrealized gains/(losses) on trading assets 223 (258) (20) 106 172 49 61 44 57 Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value (77) 97 35 3 40 (7) (139) (16) 67 Net effects of terminations or net settlements on financial derivatives 1,583 233 720 (1,300) 1,339 232 (592) 110 (312) Issuance costs on the retirement of preferred stock — (1,667) — — — — (1,956) — — Income tax effect related to reconciling items (798) 1,957 (1,419) 2,856 (1,218) 2,389 (1,759) 92 238 Net income attributable to common stockholders $ 29,431 $ 18,659 $ 31,687 $ 9,399 $ 29,066 $ 14,406 $ 28,304 $ 21,874 $ 19,560